Hyundai Motor agrees wage deal, avoids strike for first time in eight years

SEOUL (Reuters) – Hyundai Motor Co (005380.KS) and its South Korean workers’ union have reached a tentative wage deal and averted strike action for the first time in eight years, sending the automaker’s shares up by more than 4%.

The union said it took into account “the uncertain political and economic situation” stemming from a diplomatic spat with Japan as well as a U.S.-China trade dispute.

Hyundai’s unionized workers in South Korea have staged strikes in all but four years since the union was created in 1987. But the union has faced growing public and media criticism for walking out of wage talks despite workers’ relatively high pay and at a time of economic slowdown.

“We have focused on escaping social isolation,” the union said in a statement.

The deal is subject to approval from union members in a vote on Monday.

South Korea has been dropped from Japan’s “white list” of countries with fast-track trade status, effective Wednesday, deepening a decades-old dispute over the countries’ wartime history and dimming South Korea’s economic outlook.

The U.S.-China trade war meanwhile is playing havoc with global supply lines and markets vital to South Korea’s major exporters including automakers.

Hyundai and the union reached their deal “to survive in the future” amid the uncertain business environment and rapidly changing auto industry bent on electrification and autonomous vehicles, the carmaker said in a statement.

‘GOOD DEAL’

Under the latest wage agreement, each unionized worker will receive a one-off payment of up to 9 million won ($7,414), an additional payment equivalent to one and a half months’ salary, 15 Hyundai Motor shares, and a basic salary increase of 1.74%.

The basic salary increase is the lowest since at least the 2009 global economic downturn.

After the agreement, Hyundai shares rose as much as 4.4% in morning trade as worries eased about any production disruption damping its earnings recovery.

“It is a good deal. It will reduce risks to Hyundai’s earnings,” said analyst Lee Jae-il at Eugene Investment & Securities, adding the rise is less than expected.

“The union staged a strike to get a better wage deal from the company. But as profit is sagging, it’s having a reality check,” Lee said.

After six consecutive years’ of profit decline, earnings have been recovering this year as favorable currency exchange and new sport-utility vehicles (SUV) offset a sales slump in China.

A consumer boycott of Japanese cars brought about by the diplomatic spat is also likely to help Hyundai’s domestic sales, particularly of its higher-margin premium brand Genesis, analysts said.

The wage agreement will help Hyundai avert production losses as it tries to regain ground in the U.S. market with its new Palisade SUV, shipped from South Korea.