Stranded Gwangju job project distresses Hyundai

President Moon Jae-in speaks during a ceremony at Gwangju City Hall, Jan. 31, 2019, after stakeholders signed an agreement to set up an automobile plant in the city. Cheong Wa Dae press corps

By Nam Hyun-woo

A 575.4 billion won ($466 million) project to set up a contract automobile manufacturing plant in Gwangju is becoming a headache for Hyundai Motor, as multiple unions have expressed strong oppositions to the project, which was supposed to be a model case of cooperation between unions, employers, and the government.

The Hyundai Motor union recently issued a statement urging the company to abandon the project. In the statement, the union said “the project was set to fail,” claiming investment into it was “nonsense” when the company's financial prudence was under question amid the COVID-19 outbreak.

The project was to set up a joint venture comprised of the Gwangju Metropolitan Government (GMG), Hyundai Motor and a number of investors, which would run an automobile plant capable of manufacturing up to 100,000 vehicles. After its establishment, the plant would contract assemble 70,000 mini SUVs ― with a displacement below 1,000cc ― developed by Hyundai Motor annually, starting from September next year.

Following an agreement in January 2019, Gwangju Global Motors (GGM) was established as the joint venture, and hired 1,000 employees to construct the plant in the city. New workers would get an annual salary of 35 million won, almost half the average pay at the five domestic carmakers in 2016, meaning the project was also advantageous for Hyundai Motor. The GMG expected this would create 12,000 jobs across the project's supply chain.

Though the project was aimed at being beneficial for all participating parties, it has not run smoothly so far.

Since it was proposed as a cooperative project between unions, an employer and the government, it required an agreement from the unions over working rules. During negotiations, however, one of the country's top two umbrella unions, the Korean Confederation of Trade Unions (KCTU), withdrew, citing the project would bring “an overall salary cut in automobile jobs.” The Hyundai Motor union is under the KCTU.

The project continued after the other top umbrella union, the Federation of Korean Trade Unions (FKTU), joined instead, signing on to the agreement despite criticism from the KCTU and Hyundai Motor union.

Earlier this month, however, the FKTU also announced it would withdraw from the project, saying the GMG had snubbed its demands to have a board member representing employees. “The Gwangju Metropolitan Government was blinded by self-righteousness throughout the negotiation process,” the federation said in a statement.

GMG's shareholders refuted the FKTU's demand, and in a meeting April 8, they said this was not included in the agreement and they would “decide whether to pursue the project or not, dependent on the federation abiding by the agreement and joining the project by April 29.”

As the project is running aground, it has become a conundrum for Hyundai Motor.

In the 575.4 billion won project, Gwangju Global Motors has 230 billion won in equity, with the GMG being the largest shareholder at 48.3 billion won (21 percent stake). Hyundai Motor follows with 43.7 billion or a 19 percent stake.

From Hyundai Motor's point of view, joining the project was more about a contribution to society rather than feasibility, because the market for below 1,000cc vehicles has been shrinking over the past several years.

According to the Korea Automobile Manufacturers Association, Korean automakers produced 364,953 under 1,000cc vehicles last year, down from 517,888 in 2012. Such vehicles' domestic sales have also seen a sharp decline to 115,859 from 182,021 during the same period, meaning the company's investment in the project was focused more on domestic job creation rather than feasibility.

Despite these factors, withdrawing from the project is also a difficult choice for Hyundai Motor, for political reasons. When Hyundai Motor, the GMG and the FKTU signed on to the project last year, President Moon Jae-in visited Gwangju and praised it calling it “an outcome we have awaited.”

“If Hyundai Motor manufactures mini SUVs outside of Korea, the company can save more costs because Korea is no longer a lucrative market for mini vehicles.” an industry official said. “With multiple entities entangled in political causes, the project is expected to see a bumpy road ahead.”