Hyundai Motor Group Chairman Chung Euisun met with the labor union for the first time since taking office. With both labor and management under new leadership, the automaker, which has long struggled with its militant union, now sees hope of stabilizing the relationship for the first time in 11 years.

Chung had a lunch meeting on Friday with Lee Sang-soo, head of the labor union, after President Moon Jae-in’s visits to Hyundai’s Ulsan production plants the same day, according to the automaker on Tuesday.

The luncheon, which lasted about an hour and a half, was held in a relaxed atmosphere, the firm said.

“Stabilization of labor-management relations is paramount,” Chung said at the event. “Let’s find ways to ensure that employees’ satisfaction is consistent with the company’s development.”

He added, “In the era of the new industry caused by electric vehicles, labor and management must cope with the upheaval of the industry together. As chairman, I will do my best. It is important (for the union) to join.

“The collective agreement between labor and management is important,” he said, adding that the two sides should work together to prevent unrest among the employees.

In response, Lee said, “There can be no labor and management separately for quality issues,” adding that the two should work together.

“To revive the economy of Ulsan, which is the source of Hyundai Motor’s development, (Hyundai) should heavily invest in Ulsan for new projects, including business related to the ‘fourth industrial revolution’ and mobility business,” he said.

Lee added, “The union members should be able to work with pride in the company. This year, the union members have actively contributed to the company’s development by overcoming the new coronavirus infection.

“It is also important to boost their morale and invest in the 50,000 union members,” Lee said. “The company should respond in next year’s negotiations.”

Earlier in September, the automaker’s labor union voted 52.8 percent in favor of this year’s tentative wage agreement. It is the first time in 11 years that Hyundai Motor has frozen wages.

Hyundai’s labor union has been known for hard-line protests and strikes, but change has begun as the new “relatively pragmatic” union leader was elected in December and as the global pandemic persists. Lee pledged to avoid reckless strikes.

When Lee took office in January, he stressed to the union that its members can be maintained only if the company survives.

Earlier, Hyundai Motor’s labor-management advisers said cuts to the company’s manufacturing workforce would be inevitable by 2025 due to changes in automobile production technology and the need to move toward eco-friendly and self-driving vehicles.

Lee Ho-geun, a professor of automotive engineering from Daeduk University, said, “It is true that the (labor union’s) direction has changed considerably and has changed to pro-business compared to its past behavior.

“At a time when Hyundai is trying to overcome the tariff barrier in the global market, if the union continues to be militant, the automaker will have to reduce domestic production and increase it overseas.”

Chairman Chung Euisun faces the task of reorganizing the company’s complex governance structure.

Hyundai is now the only group that has failed to break the loop of cross-shareholding among the nation’s top five conglomerates, the others being Samsung, SK, LG and Lotte.

To succeed in management and address concerns about vulnerability to attacks by external speculative capital, Chung will need to resolve the circular shareholding structure.

The three key affiliates of the group are Hyundai Motor, Kia Motors and Hyundai Mobis, which is the largest shareholder of Hyundai Motor. Mobis shares are necessary to take control of the group, but Chung Euisun only has a 0.3 percent stake in Mobis. He also has 2.62 percent and 1.74 percent stakes in Hyundai Motor and Kia Motors, respectively. He has the most shares in Hyundai Glovis, with a 23.29 percent stake.

Governance reform is also necessary as a result of tightening regulations against chaebol ownership. The government is currently seeking to expand the scope of those subject to regulation on intratrade deals from major shareholders with holdings of more than 30 percent to those with more than 20 percent. If the regulations change as planned, Chung must sell his stake in Hyundai Glovis.

After attending the Hydrogen Economy Committee, his first external activity since taking office, Chung told reporters that he was “considering” the restructuring of the governance structure.

The most likely option for now is the governance reform plan announced by the group in March 2018.

Previously, Hyundai Motor Group attempted to break up its circular shareholding by dividing de facto holding firm Hyundai Mobis into a core parts business and module and after-sales service business, letting Hyundai Glovis absorb the module and after-sales service business. Then-Chairman Chung Mong-koo and his heir Euisun planned to purchase stakes in Hyundai Mobis to keep it as the controlling company of the group.

However, as shareholders opposed the plan and US activist hedge fund Elliott Management pressed Hyundai Motor and Hyundai Mobis to merge and convert into a holding company, Hyundai voluntarily withdrew the reform plan.

The latest scenario of governance restructuring in the market focuses on how to compensate for past failures.

The most likely option is to divide Hyundai Mobis’ after-sales service business, which accounts for 70 percent of the firm’s total corporate value, and list it separately before merging it with Hyundai Glovis. After that, Hyundai Mobis could make a purchase of the merged Glovis, in which the chaebol family members could participate.

Although it would take some time to list the split company separately and merge it with Hyundai Glovis, it would minimize shareholders’ opposition over the fairness of the merger ratio, since unlike in 2018 the merger ratio would be left to the market.

Another likely option is to divide Hyundai Mobis, Hyundai Motor and Kia Motors into investment and business sectors, and merge the three investment sectors to turn them into a holding company. However, when switching to a holding company system the group would have an issue in giving up financial affiliates such as Hyundai Card and Hyundai Capital, due to the nation’s separation of industrial and financial capital law. 

By Shin Ji-hye (shinjh@heraldcorp.com)