China Factory Output Down Nearly A Fifth As Other Car Companies Look On

Honda says that its factory output in China fell nearly 20% in the month of May. The labor dispute between Chinese workers and the Japanese car company worsened in June, so its financial impact is certainly getting worse.

And, it may get worse again. Unions have been able to disrupt the work at four Honda plants. If the laborers do not get the wage increase that the want–in some case close to 100%–it seems that they are well enough organized to expand their efforts to other plants and badly cripple Honda’s manufacturing operations in the People’s Republic.Honda produces about 40,000 vehicles a month in China.  Unless the disputes are resolved, Honda’s business in the world’s largest car market could be set-back at a time when ever major global car company has to do well in China to bolster worldwide earnings.

The strike against Honda is not just a work stoppage that affects one company. Other large foreign auto companies with facilities in the country are waiting to see what happens. The strike against Honda will not be the end of it. Unions will demand better wages at all the car companies, eventually. That will change the profit dynamics of doing business on the mainland.

Selling cars in the world’s largest car market using cheap local labor, it turns out, was too good to be true.

Douglas A. McIntyre