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Honda Motor Co. Experiences Labor Strikes in China

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On: Wed, Jun 16, 2010 at 1:37PM | By: Sherry Christiansen

Honda Motor Co.  Experiences Labor Strikes in China

A recent strike at a Honda Motor parts factory in China could result in more demands across China's vast manufacturing belt as workers seek a higher wages in order to meet the country's rising cost of living expenses.

Approximately 1500 workers walked off the job this week at the Honda Lock plant, a major supplier of locks for Honda’s auto manufacturing operations in China. The face-off occurred without any hostility, compared to last week when hundreds congregated outside the front gates of the factory and riot police were called in to keep workers from leaving.

According to Bloomberg News Week Magazine today, “Profits at Honda Motor Co. may be cut by as much as 10 billion yen ($109 million), Goldman Sachs Group Inc. said, after the Japanese automaker suffered its worst strikes in 18 years of making cars in China.”

The strike is the most recent of a series of factory strikesaround southern China, involving workers who are demanding higher wages to meet the region’s increased cost of living, and according to the Bloomberg News; “as supply of low-cost labor shrinks, wage increases will accelerate, posing greatest risk to manufacturers such as carmakers and technology companies that rely on cheap labor and have limited pricing power,” Credit Suisse Group AG analysts said.

According to Liu Kaiming, executive director of the Institute of Contemporary Observation, a privately-funded group in Shenzhen that focuses on labor issues, "We've already seen a growing number of strikes in previous years, especially in 2007 and 2008, when the new labor contract law was introduced, and then there was a gap in 2009, but now we're seeing the trend resume." He added, "The Honda strike is an extension of that... It also shows that there is a trend that is being driven by a new generation of migrant workers. They are more willing to speak out about their grievances, and are less tolerant of long hours and tough conditions than the older generation."

The strike at Honda Lock was the third strike to occur at a Honda parts supplier in China. Other strikestook placeat suppliers producing transmissions and exhausts, but were settled after employees received wage increases. Management at Honda Lock has offered a wage increase of 100 Yuan ($15), and another 100 Yuan in benefits, but some employees at the plant expressed that was not enough.

According to Wen Xiaoyi, a researcher at the China Institute of Industrial Relations in Beijing, "Generally, working conditions at car assembly plants are much better than in other industries, whether we're talking about wages or general treatment." Beijing was also quoted as stating “conditions at parts suppliers tend to be worse. The reason is car assembly requires mostly skilled workers with some specialized training, but car parts manufacturing is less sophisticated, so workers are less educated and their pay is lower."

“Honda can’t avoid rising labor costs and prices of purchased parts,” Koji Endo, managing director at Advanced Research Japan, said by phone. Many Chinese cities increased minimum wages this year by about 15 percent to 20 percent from 2009.”

The strikes may have had an inclement effect onHonda's (the second largest car maker in Japan)stock as value has declined by 0.4% this month compared with Toyota’s (Japan’s largest automaker) gain of 1.5% and an increase of over 5% for Nissan Motor corporation, which is the country's third largest car maker.

Businessweek.com reports that the increase in wages for Chinese laborers is not a very likely deterrent to keep Honda from continuing to have parts manufactured in China. According to Koichi Ogawa, chief portfolio manager at Daiwa SB Investments Ltd. in Tokyo, “Japanese companies aren’t going to China for cheap labor,” he said. “There’s a huge market there that’s expanding rapidly. The companies need to produce locally in part because of tariffs.”

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