Renault Samsung May Lose Contract on New Model
Groupe Renault, the parent company of Renault Samsung Motors Co., have issued an official warning to its Korean affiliate as the company’s labor union has been continuing a strike for a wage hike.
The Renault headquarters warned that if the labor union continues to strike, Renault Samsung would have no new model to produce after the planned discontinuation of the production of the Nissan Rogue in September this year.
The Nissan Rogue accounted for 49.7 percent of the total production at Renault Samsung’s Busan plant last year. If Renault Samsung fails to secure a new model to produce after the Nissan Rogue, it will be hit hard.
Jose-Vicente de Los Mozos Obispo, deputy alliance executive vice president, manufacturing & supply chain, sent a video message to Renault Samsung’s executives and employees before the Lunar New Year’s holiday and said, “You have achieved a high performance, but if the strike continues, the operating hours of the plant will go down and the trust you have built up will fall. Under these circumstances, it is hard for us to have a discussion with Renault Samsung on the follow-up model to the Rogue.”
Renault Samsung’s labor union has staged 28 strikes (104 hours) for four months from October last year after failing to reach an agreement in wage negotiations with the company. The union is pushing for a 100,667 won (US$89.40) raise in the base wage.
France-based Renault is currently fighting over the control of its alliance partner, Nissan in Japan, with Nissan officials. Therefore, there is growing concern that Renault Samsung could end up losing the contract for production of a new model to Japan due to the strike.
If Renault Samsung fails to receive a new model to produce, it cannot help but face a crisis. The company began to produce the Nissan Rogue, the best-selling sport utility vehicle (SUV) in the world, at the Busan plant on consignment basis in August 2014. The model put loss-ridden Renault Samsung on track.
Renault Samsung has been in discussions with the Renault headquarters in order to roll out a new SUV model from its production lines starting early next year after discontinuing the production of the Nissan Rogue. An official from Renault Samsung said, “In time for the end of the contract on the Nissan Rogue, global Renault Nissan and Renault Samsung have jointly carried research and development (R&D) on the new model from years ago and are working on the design and branding for it.”
However, the ongoing strike by Renault Samsung’s labor union seems to be making the headquarters change its mind. The company’s productivity significantly decreased as the union staged a partial strike 28 times from October last year to Feb. 7 this year. The 104 hours of strike caused an output loss of about 5,000 units. The union even stepped up the level of the strike this year and increased the partial strike from two hours to four hours.
The labor union demands a 100,667 won (US$89.40) raise in the base wage, an additional 20,133 won (US$17.88) for self-development and a special incentive of 3 million won (US$2,664). Renault Samsung management has not accepted the demands because if its labor costs go up, its competitiveness would fall below that of Renault plants in other countries, which would cost it the contract on production of a new model. The management is trying to persuade the union that it would give a reward after signing a contract on a new model. This is because the company believes that it can survive only when it wins the contract.
Renault Samsung was able to receive the Nissan Rogue contract in 2014 largely due to a higher efficiency than Nissan’s plant in Kyushu. However, the headquarters will turn its eye to other overseas plants if the strike keeps causing delay in production and the labor costs increase.
Meanwhile, Renault Samsung saw its performance in terms of domestic consumption and export greatly drop in January. The company announced on Feb. 1 that it sold a total of 13,693 units in January, including 5,174 units at home and 8,519 units abroad. The domestic consumption decreased by 19.2 percent from a year earlier and a whopping 52.1 percent from the previous month. Its exports dropped by 44.8 percent from a year ago but rose by 11.2 percent from a month ago.