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Hyundai goes low on U.S. wages

Hyundai goes low on U.S. wages
Automaker says it must preserve price point of its vehicles

By Lindsay Chappell
Automotive News / May 26, 2003

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Land of disparity
Decision makers at Hyundai's Alabama plant will factor these extremes in hourly manufacturing wages

Typical Big 3 assembly plant: $27
Montgomery, Ala., area: $11.10

Work wanted

Hyundai Motor Manufacturing Alabama LLC

Proposed employment: 2,000
Number of applications requested by local candidates: 25,000
Number of formal applicants: 12,500 (estimate)
Number of related Tier 1 supplier jobs announced to date: 2,800
First production hires: June 2003

Workers at Hyundai Motor Co.'s factory in Montgomery, Ala., will be paid a lower wage than comparable workers at other non-Big 3 automakers in the region.

The move is necessary, said Byung Mo Ahn, executive vice president for Hyundai Motor Manufacturing Alabama LLC, because the Korean automaker needs to preserve the price position of its vehicles.

But the strategy could leave Hyundai vulnerable to an organizing effort by the UAW.

"We are still trying to improve our brand image so that we can charge more on MSRP to consumers," Ahn said when asked about Hyundai's Alabama wage plans at the Automotive News Manufacturing Conference on May 6 in Birmingham, Ala. "But we are not Mercedes. We are not BMW. We are not Toyota, Honda, Nissan. So I think in the beginning, our team members will expect something lower than that. But it's competitive."

A company spokesman later clarified that the wage structure will be competitive with other automakers when it is completed.

Opening for UAW?

The issue is a potential land mine for Hyundai and could open the door to the UAW, which has made several unsuccessful attempts to organize workers in the Southeast assembly plants of Toyota, Honda, Nissan and Mercedes-Benz.

Most of the non-Big 3 auto plants have avoided unionization in the United States in part by paying wages that are nearly as high as the UAW-represented jobs at the Big 3 - about $27 an hour in wages, plus benefits, says Sean McAlinden, director of the economics and business group at the Center for Automotive Research in Ann Arbor, Mich.

"You might see Hyundai pay 70 percent - maybe even as low as 60 percent," McAlinden says. "But that will be only for the first three years or so of the plant launch. After that, it will go up. No one has gone more than 7 or 8 percent lower than the Big 3 rates. In fact, among the transplants, that gap is actually getting narrower."

Low-wage area

At least locally, the Hyundai plant, which will open in 2005, could have some maneuvering room on wages. The average manufacturing job in the greater Montgomery market pays $11.10 an hour, says Randy Cardoza, senior vice president for the Montgomery Area Chamber of Commerce. Hyundai will be the only auto assembler in the Montgomery area.

At the nearest auto plant, 100 miles away in Vance, Ala., Mercedes-Benz U.S. International Inc. pays the same rates that UAW assembly plants pay.

But Mercedes and Hyundai are not competitors. The Mercedes plant builds the M-class SUV, which sells for $40,000 to $50,000.

Hyundai is building its first U.S. plant, after operating in low-wage South Korea, to produce Sonata sedans, which sell for $17,000 to $18,000, and Santa Fe sport wagons, which sell for about $20,000.

Keeping its manufacturing costs down is a critical issue for Hyundai. Speaking at the Birmingham conference, Ahn said the company is examining many cost issues.

"We are still evaluating the pros and cons of coming to the U.S.A.," Ahn said in response to a question about getting U.S. suppliers to meet cost targets.

"In Korea, we have a lower labor rate. But (in Alabama) we can save some transportation over the ocean and save on customs duties. There are many things we can recover later on. I think productivity is very important."

Ahn vowed that Hyundai would treat its employees "as family." But he said the company is moving cautiously to ensure the project's success.

"We are pouring a lot of money here," he said. "We must be very careful. We need to be sure this is a safe investment. And then anything could happen in the future."
 
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