Labor strife at auto parts suppliers threaten carmakers

Labor strife at auto parts suppliers threaten carmakers. May. 24, 2011 05:47. alwaysj@donga.com sukim@donga.com.

If car seat manufacturer DAS, which has factories in Gyeongju, South Gyeongsang Province, and in Asan, South Chungcheong Province, suddenly grinds to a halt, this will cripple more than half of Hyundai Motor’s production line.

Importing car seats is difficult because of their big size. Hyundai also receives virtually all of its brake drums from Myunghwa Industrial and Busan Cast Iron.

If workers at piston-ring maker Yoosung Enterprise prolong their walkout through this month, all five domestic automakers will suffer losses of 50,000 cars worth 1 trillion won (910 million U.S. dollars).

The story might not end there because more companies could face strikes. Twenty-five thousand components are needed to manufacture a single car, meaning a single component can cause turmoil in Korea’s auto industry, a sector worth 81 trillion won (74 billion dollars) in annual sales.

Carmakers say they are fearful because they cannot find alternative suppliers.

According to auto industry sources Monday, 20 percent of Korea’s 890 primary suppliers to automakers do business exclusively with Hyundai Motor. A production breakdown at one of these primary suppliers could incur losses equal to half of output.

An employee at the Korea Auto Industries Cooperation Association said, “It is possible for several companies supplying the same component but production costs will rise then due to a small economy of scale. Only domestic companies supply spark plugs to automakers.”

Such a monopoly is not limited to Korea. The global auto industry has suffered a setback in gloss paint supply in the aftermath of the Japanese earthquake in March. This was because xirallic production broke down.

Xirallic, a material supplied by Germany’s Merck, is needed for paint pigments used in gloss. When the volcano in Iceland erupted last year, BMW, Audi, Nissan and Honda also suffered setbacks in production.

A short-term solution is possible through Yoosung`s normalization. The government and economy agencies acknowledge this and thus are taking a firm stance on the matter.

Knowledge Economy Minister Choi Joong-kyung criticized Yoosung`s labor unions by saying, “How can the public understand an illegal strike at a company where the average employee earns 70 million won (63,758 U.S. dollars) in annual salary?”

The Federation of Korean Industries and the Korea Chamber of Commerce and Industry also urged the government to stop the strike.