Seoul: Hyundai Motor shares tumbled to a three-week low on Tuesday on worries that a prolonged labour dispute may cause major output disruption at South Korea’s largest automaker.
The dispute, which highlights how organised labour has long been a disruptive force in Asia’s fourth-largest economy, comes on a day when India’s Mahindra & Mahindra signed a final agreement to buy South Korea’s smallest automaker, Ssangyong Motor , for $464 million.
Ssangyong Motor was itself hit by almost two months of labour strikes last year, crippling its production.
Labour unrest remains a concern for South Korea’s auto industry, which typically face strike action every summer.
“It is possible that Mahindra might have to give a wage hike, or help workers retain jobs, so that might stretch P&L to some extent,” said Umesh Karne, research analyst at Brics Securities in Mumbai, referring to Mahindra & Mahindra’s balance sheet.
“Labour unrest has been a feature of the South Korean market for the past one year.”
Hyundai has this year avoided an annual strike by regular workers for the second consecutive year, but temporary workers went on a strike this month, demanding Hyundai convert their position into permanent ones.
The strike has also raised concerns that prolonged action may weaken profit growth at the world’s No.5 automaker.
“We have expected Hyundai Motor to log its best results for the fourth quarter. But should the strike be prolonged, that may not happen,” said Lee Sang-hyun, an analyst at NH Investment & Securities.
“The shares are also coming under pressure after its sharp rise this year.”
Shares in Hyundai, which have jumped 49% this year and easily surpassed the wider market’s 16% gain, fell 4.2% on Tuesday to a three-week low.
Shares in its affiliate Kia Motors , which have more than doubled this year, also slid 3%.
A Hyundai official said on Tuesday that it has suffered more than 100 billion won ($88.8 million) in lost production since Nov. 15 due to industrial action by temporary workers at its lines in the southeastern city of Ulsan.
An umbrella union group, of which Hyundai’s labour union is a key member, voted on Monday to launch a full strike early next month, if Hyundai Motor’s management refuses to hold talks with temporary workers by the end of this month.
Hyundai has said it would not go into talks over an illegal strike.
Some analysts said the impact would be limited as regular workers were unlikely to participate in a strike.
“The strike will not have a major impact on Hyundai’s business, because it is waged by temporary workers,” Ahn Young-hoe,“ a fund manager at KTB Asset Management.
“The strike has affected share prices today, but the shares have also been affected by investors’ portfolio adjustments and rising market concerns over China’s possible monetary tightening, which would dent sales of automakers.”
Mahindra Buys Ssangyong
India’s Mahindra meanwhile signed a final deal to buy Ssangyong to own 70% of the company and expected the sales process to be completed in March next year.
The widely-expected deal sent Ssangyong shares jumping initially. But the shares soon reversed direction and fell 4.5% in a broader market down 1.15%.
Investors are cautious about a major turnaround at Ssangyong, a SUV maker that has been under court-led restructuring since February 2009 when the global recession hit overall car sales.
“The signing has been already expected, and the question is whether Mahindra would invest in Ssangyong and help the South Korean company launch successful new model line-ups,” Lee said.
After a dismal 2009 and nearly two months of strikes to block layoffs, Ssangyong, which makes Rexton and Kyron SUVs and the chairman luxury sedan, has seen a steady recovery in earnings, helped by new model launches and asset sales.
It sold a record 7,447 cars last month and expected record sales for November. Long-term prospects are also improving, as it expects Mahindra to help increase foreign sales and new model developments.
“Ssangyong and Mahindra are complementary to each other in product portfolios, and along with extensive sales and distribution networks of the two, it will help the two expand in the overseas market,” Ssangyong said in a statement.
The deal marks a third change of main shareholders for Ssangyong. Now defunct Daewoo group took over the company in 1998 and Ssangyong was sold in 2004 to China’s top automaker SAIC Motor Corp , but both failed to grow the automaker to challenge Hyundai.
Analysts said the deal gives Mahindra access to advanced technologies and a position from which it can launch its global ambitions, but integration with a company that has a history of labour disputes would be a tough task.
“Being in that market, proper focus and handling human resources will be key challenges for Mahindra,” said Vaishali Jajoo, a sector analyst with Indian brokerage Angel Broking.
“In the long term, this will provide a big brand to their portfolio. It will also give them the global presence that they have been looking form, besides access to Ssangyong R&D capability and technology.”