Carmakers around the world may be struggling with common problems such as a slowing economy, fierce market competition or growing demands on technical innovations.

But Hyundai Motor, Korea’s largest carmaker, is being cornered by other factors that include chronic labor disputes, rigid hierarchy in management and a diminishing monopoly in the local market, experts said.




Concerns are growing over the South Korean carmaker and its future, raising questions about its growth capacity and future agenda.

Profits are falling rapidly along with market share, both in domestic and overseas markets. Product quality is being questioned over massive recalls of its signature sedan Sonata’s engines.

The carmaker and its sister company Kia Motors are losing ground, even on home turf, to foreign cars. Hyundai and Kia’s combined market share tumbled to 66.3 percent in the period January to September this year, from 74.6 percent in 2012. Last week, Hyundai Motor’s third-quarter net profits dived 7.2 percent to 1.12 trillion won ($982.4 million) from a year earlier.

On the global front, Hyundai’s rank in terms of its market value dropped five notches to No. 13 in October from No. 8 in 2008, according to Bloomberg. The South Korean carmaker was knocked off the top 10 list, with Shanghai Automotive Industry Corp. of China and the US’ Tesla taking ninth and 10th places, respectively.

Industry insiders say the situation is more serious than before.

“Things are unlikely to improve next year, that is our concern,” an official told The Korea Herald, requesting anonymity. 





Local experts point to structural problems within Hyundai Motor rather than technical glitches, saying that going forward without fixing the problems will further drag the automaker down.

“Labor disputes are like a cancer to Hyundai Motor,” said Kim Pil-soo, a car industry expert and professor at Daelim University.

“Despite the labor union having had excessive demands, Hyundai embraced it every year, leaving itself to endure high costs and a low production system,” he said, adding that workers at the Hyundai Motor plant in Korea get around 20 million won more on average than those at the carmaker’s US plant.

The conglomerate’s “imperialistic management style” is another challenge, especially the rigid hierarchy within the organization and its relationship with suppliers.

Working-level officials fear reporting problems to superiors, which often makes things worse as they end up trying to fix the problems themselves, Kim said.

In September, Hyundai Motor suffered a public relations debacle after a former employee and whistle-blower leaked confidential documents and disclosed the company’s alleged attempt to conceal engine defects from local customers.

The employee surnamed Kim claimed that at Hyundai, even if such issues are raised, workers are pressured to stay silent. He said during interviews with local newspapers that he made the disclosure out of desperation, adding the company kept concealing defects from the government even though he raised the alarm several times.

The defects in question referred to those found in the Theta-II engine produced in the US, leading to a massive recall and compensation program in the country.

The company clarified that the engine produced in South Korea had no defect reported and that those found in the US had defects due to an inflow of metal components in the air to the engines during the manufacturing process.

But the damage had been done to Hyundai’s image. The company Wednesday fired Kim after holding a disciplinary meeting on the case last month.

Choi Woong-chul, an automobile engineering professor at Kookmin University, also expressed concern over the company’s stringent culture, saying the carmaker should face up to the reality that it can no longer hide defects using its monopoly on the market.

“For a long time, Hyundai, by absorbing Kia, maintained its monopoly status and stayed less concerned about consumers’ rights,” he said.

“But in this connected world, concealing defects can no longer work, consumers not only in Korea but also overseas have easier access to information. Denial is an old-fashioned way of responding to such problems. (Hyundai) needs to face up to reality and fix it for its own future,” he said.

The vertical relationship that is rampant between the carmaker and its suppliers also undermines Hyundai’s strength in research and development.

“The reason German carmakers are competitive and are the leaders of automotive technology is that they have strong suppliers which have almost an equal status with carmakers,” said Kim of Daelim University.

“In Korea, suppliers are tied up to contracts that leave a tiny portion of profits to them. There’s no way they can invest in R&D.” 

Both Kim and Choi agreed that changes have been detected among low-level staff within the organization, but not in the company’s management.

“I think engineers have started to feel the need to address the problem, but not the people in higher ranks,” said Choi.

Kim added, “Owners are often unaware of what problems the carmaker is facing.”

(christory@heraldcorp.com)



By Cho Chung-un (christory@heraldcorp.com)