At the depth of the recession when there was a falling market for new cars, strikes were almost welcome in the US and EU. Most car companies had so much inventory that a break in factory production had some good side effects. That may be a reason why Ford (NYSE: F), GM, and Chrysler did so well in negotiations with the UAW two years ago.
It is a different matter today in China. The market is now the world’s largest for vehicle sales. Seventeen million cars and trucks will probably be sold in the People’s Republic this year, more sales than the US ever generated. That makes the labor strikes, which have begun once again at Honda (NYSE: HMC) and Toyota (NYSE: TM), all the more costly.The two Japanese car companies said they had stopped production at their plants in southern China. Local firm Guangzhou Auto Group has joint ventures with both manufacturers. That has not given management any leverage. Workers know that Toyota and Honda will lose market share to the sales leaders VW and GM if they cannot keep their plants open. The central government has largely stayed out of the matter except to mention that the rights of workers need to be honored.
Workers have not attempted to shutter VW or GM facilities or those of any of the other large car companies headquartered in Asia or Europe. The labor movement is too clever for that. If vehicle production across China is slowed, the country’s GDP will be damaged, if only slightly. The rapid growth of the burgeoning car market would be undermined.
Auto workers do not need to strike VW or GM now. They have already sent a message to those companies. Unions at vehicle manufacturers in China expect raises of 50% to 100% for their members if the Toyota and Honda labor problems are any guide. The firms will not have much say in the matter. Market share in China is too precious and it will only take a month or two of slow or no production to give some manufacturers an important edge. That makes the unions into king makers.
Douglas A. McIntyre
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