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Kia cuts all overtime to grapple with rising losses

Sept 22,2017
Kia Motors, the nation’s second-largest automotive company by sales, will scrap overtime work at its factories across Korea starting next Monday. The decision was mainly driven by the slump in sales in China and a recent defeat in a wage-related legal battle with the company’s labor union.

According to the carmaker on Thursday, the day shift for its plants in Gwangju, South Jeolla, and Sohari and Hwaseong, both in Gyeonggi, will be reduced by 10 minutes while the evening shift will be slashed by 20 minutes, removing the 30 minutes of daily overtime for the laborers. The company currently operates three plants in Korea.

The company is being forced to make cuts in labor costs to reduce losses stemming from various unfavorable conditions.

Through an official statement, the company cited reasons such as a government policy to reduce working hours across the nation as well as the declining sales and the recent loss in the legal battle, which will increase labor costs for Kia.

In China, the world’s biggest auto market, Kia has taken a big hit in sales since March.

Beijing is retaliating against Korean companies for Seoul’s decision to deploy an American anti-missile system and encouraged ordinary Chinese to boycott Korean products.

This led to a drastic fall in sales of Korean-made goods including cosmetics and cars.

Kia’s sales in China as of July stood at 172,674 vehicles, a 52 percent fall from a year before. In the second quarter, Kia’s sales in China retreated 64 percent year on year.

Meanwhile, on Aug. 31 the Seoul Central District Court ruled that regular bonuses paid to workers should be included in the so-called basic wage of an employee, which is used to calculate overtime payments, severance and other benefits.

The court ordered Kia to back-pay its workers a total of 400 billion won ($353 million) for the period of Aug. 2008 to Oct. 2011. Kia may have to write off about one trillion won in the third quarter, although it is appealing the ruling.

This will “inevitably” put the company in the red, Kia said in the statement. Its first half operating profit was 786.8 billion won.

“As a result of the legal defeat, we will not be able to secure profit if we have to pay extra wages for overtime,” said a company spokesperson.

As a result of Thursday’s decision, the average amount of labor cost per year for each worker will be cut by around one million won, the company estimates. Total volume of production will be trimmed by around 41,000 vehicles per year.

“It’s a lose-lose situation for both the company and the laborers,” said an industry insider. “With the policy to suspend overtime work, the company will be forced to hire additional workers in case demand picks up again. The workers, obviously, will not be able to take home the overtime payment since they cannot work more than regular hours.”

The company said it notified its union on Thursday.

“The act of reducing overtime work as soon as the labor union won the lawsuit shows the irrational decision making structure of the company, which excludes the laborers,” said the union in response.

“While we have the intention to discuss with the management the matter,” it continued, “we cannot accept this one-sided notification to suspend overtime work.”

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]