Honda Motor Co.’s (HMC) woes with labor trouble in China are seemingly endless. The automaker has faced a labor strike for the third time in less than a month in the country. The affected plant belongs to Honda’s affiliated company, Honda Lock Co., a supplier of door-locking systems located in the southern province of China, Guangdong.
On May 17, Honda faced the first labor strike at its Honda Auto Parts Manufacturing Co. plant in Foshan, Guangdong. About 1,850 workers, who manufacture transmissions and engine parts at the plant, walked out demanding a pay raise. This caused the company to halt production at all four assembly plants in the country due to a shortage of parts. However, Honda resolved that strike last week by agreeing to pay raises of 24%–32%.
Honda faced another labor strike at its Foshan Fengfu Autoparts Co. plant in Foshan, Guangdong over pay hike. The plant is a joint venture between Honda subsidiary Yutaka Giken Co. and a Taiwanese partner, and manufactures exhaust and muffler components.
Honda has settled the second strike as well by reaching an undisclosed agreement with the workers. The workers ended the two-day strike and returned to work yesterday.
In the latest strike, about 1,500 workers at Honda Lock are demanding a monthly pay hike to RMB2,040 ($297) from the existing RMB1,700 ($248).
Labor strikes in China are becoming more and more obvious as workers in the country have started opposing the low-cost model of the country as a manufacturing base. Many foreign companies including Daimler AG (DAI), Ford Motor Co. (F), General Motors, Coca-Cola (KO) and PepsiCo (PEP) have strengthened their manufacturing footprint in the country over the years in order to take advantage of the cheap labor. However, the workers are offered only a negligible portion of their income.
The Chinese government, who has discouraged strikes and censored reports about labor unrest so far, is also showing interest in changing the low-cost manufacturing model of the country. It has reportedly encouraged local governments to raise minimum wage standards and asked companies to treat workers with greater dignity.
Recently, the local government of Shenzhen, a popular manufacturing city near Hong Kong, has raised minimum wages for all workers in government as well as private companies by 10% to RMB1,100 ($160) per month, starting in July this year.
The labor dispute has put Honda in a backfoot with respect to its plan to expand production in China. The automaker’s sales in China accounted for 17% of its global sales in 2009. It will increase sales in the country by 9% this year to 630,000 vehicles. Further, it plans to lift production capacity in the country by 28% to 830,000 vehicles a year by the second half of 2012. It will also introduce two new models in the country to meet the growing demand for cars.
Read the full analyst report on “HMC”
Read the full analyst report on “F”
Read the full analyst report on “KO”
Read the full analyst report on “PEP”
Zacks Investment Research
