Hyundai Motor's union votes to strike after wage talks fail

By Hyunjoo Jin

SEOUL (Reuters) - Hyundai Motor's unionized workers in South Korea voted on Tuesday to strike over stalled wage talks, adding to the woes of the automaker that is bracing for potential new U.S. tariffs amid falling profits.

Its shares slid to eight-year lows after the union, which has voted to strike every year for the past six years, said on Monday that nearly three-fourths of its 44,782 voters voted in favor of the strike action.

"We have not been able to narrow differences in key issues, making it difficult to reach a preliminary (wage) deal easily," the union said in a statement.

Union negotiators later on Tuesday decided to hold off on starting the strike until July 10, when they will discuss a strike plan again, a union spokesman said.

The union walked out of the wage negotiations in late June, after Hyundai Motor proposed wage increases and bonuses which the union said fell short of expectations.

This year, the union is demanding a 5.3 percent increase in basic monthly wage, lower than the 7 percent it asked for last year and compared to South Korea's annual inflation rate of 1.9 percent for 2017. It also wants performance pay totaling 30 percent of the automaker’s 2017 net profit.

The demands come at a time when South Korea's automobile industry is experiencing rough weather. The country's vehicle production fell 3 percent 41.15 million in 2017, its lowest level since the 2009 global economic downturn.

The union at General Motors' (GM.N) domestic unit, which narrowly avoided bankruptcy about two months ago, has agreed to freeze base wages and skip bonuses for this year as well as trim benefits.

Hyundai Motor's net profit halved to an almost six-year low in January-March, hit by bleak U.S. and China sales. Although China sales are modestly recovering, its U.S. sales will remain weak, weighing on earnings, analysts have said.

"Business conditions are tough as net profit continues to decrease," Ha Eon-tae, an executive, said during the talks, according to the union's internal note seen by Reuters.

"We have taken into account the U.S.-China trade war and U.S. protectionist tariff policy (when proposing the wages)," he said, according to the note.

PRODUCTION DISRUPTIONS?

Hyundai Motor declined to comment.

Its shares fell as much as 3.2 percent on Tuesday to their lowest level since April 2010, before ending down 1.2 percent in a flat wider market. (.KS11)

"While the strike will help reduce inventory for some low-selling cars, it will disrupt production of higher-demand SUVs," said Cho Soo-hong, an analyst at NH Investment & Securities.

"It is difficult for the company to give generous bonuses when profits are deteriorating. Potential U.S. tariffs may also force Hyundai to boost U.S. production, which will lead to reduced local output," he said.

The United States in May launched an investigation into whether imported vehicles pose a national security threat and President Donald Trump has repeatedly threatened to quickly impose tariffs.

Hyundai Motor said over the weekend that the U.S. tariffs of up to 25 percent "would be devastating to Hyundai Motor", adding to its U.S. production costs by about 10 percent.

Hyundai Motor, the world’s fifth-biggest automaker together with affiliate Kia Motors , has been hit by strikes in all but four years since the union was formed in 1987. In most of the years, striking workers and management have struck compromise wage deals to restore normalcy to operations.

The union spokesman said on Tuesday talks with the company will resume on Wednesday, with a goal to reach a compromise deal before summer holidays start on July 30.

(Reporting by Hyunjoo Jin; Additional reporting by Cynthia Kim; Editing by Muralikumar Anantharaman)