S.Korean summer strikes widen at Hyundai Motor

S.Korean summer strikes widen at Hyundai Motor

Jean Yoon Reuters Seoul

About 40,000 unionized workers at South Korea's top car maker, Hyundai Motor Co, began a two-day strike on Tuesday to demand higher wages, fanning investor fears over another summer of labor unrest.

South Korea traditionally faces a seasonal rise in union action every summer, but labor strife this year poses a big headache for a government struggling to boost sluggish domestic demand and business spending.

If successful in hiking wages, the strikes also threaten to reduce Hyundai's competitiveness against U.S. and Japanese car makers, whose wages are flat or growing slowly, and strengthen its push to move car plants to Europe and the United States.

Hyundai's union is the country's largest and most powerful member of the umbrella group Korean Confederation of Trade Unions, which is threatening to unleash a summer of labor discontent, demanding higher wages and better working conditions.

A combined 110,000 workers at Hyundai Motor and smaller auto makers, textile companies, department stores and other workplaces are due to lay down tools on Tuesday, according to the union group, which has a total of 600,000 members.

"The strike started at 8 a.m. (2300 GMT on Monday) as scheduled," a Hyundai union spokesman said. "All union members are participating."

"The operation has been halted due to the strike," said a Hyundai spokesman. Hyundai has a total workforce of 50,000.

The strike comes after wage negotiations between Hyundai's management and its union unraveled. The union, which is seeking a 10.48 percent increase in wage and a bonus of 30 percent of profits, earlier held a second six-hour strike on Monday after similar action on Friday.

The labor group has also vowed to protest against sending more troops to Iraq after the killing of a South Korean hostage by Muslim militants last week. The labor minister has urged unions not to link strikes to the deployment.

Separately, unionized workers at KorAm Bank, the country's sixth-biggest lender, which was recently bought by Citigroup Inc, entered its fifth day of strike to seek job security, disrupting operations at most of its branch offices.

Unionized workers at Hyundai's affiliate Kia Motors Corp started an eight hour strike on Tuesday, while smaller rival Ssangyong Motor Co will hold a four-hour strike.

Foreign investors cite labor unrest as the number one deterrent to doing business in Korea and local share prices suffer from the so-called 'Korea discount', linked to poor corporate governance as well as frequent industrial unrest.

The South Korean market is trading at a combined price to forecast earnings multiple of 6.75, well below Hong Kong's 13.78 and Japan's 19.45.

Although union action is prominent, Korea has one of the lowest trade union membership ratios in the world and large swathes of the economy are unaffected by the latest strikes. Only one worker in eight is in a union, government data shows.

Despite the threat of a broader walk-out, analysts said they did not expect the current labour dispute to be violent or disruptive as some previous strikes that took weeks to end.

"This year's labour dispute may not be as intense or prolonged as the previous ones, which is what the market seems to be expecting," said Mark Yoon, an analyst at Merrill Lynch in a note to its clients.

A labor dispute at Hyundai last year went on for 45 days.

Goldman Sachs said Hyundai's inventory level stood at slightly over one month in Korea, or over 60,000 units, and almost three months in the United States, which would provide it with a sufficient buffer to weather the strike.

"With the union aware that it could actually be helping out management by voluntarily walking out and producing less, thereby clearing inventory, the strike is not as potent as it might have been amidst a better sales environment," Merrill's Yoon said.

Shares in Hyundai Motor were up 0.6 percent at 42,250 won by 0424 GMT, broadly in line with the broader market's 0.23 percent gain.

KorAm was unchanged at 15,500 won, Kia was 0.11 percent higher at 9,500 and Ssangyong lost 1.07 percent at 7,420.