11 June 2010

In China, Honda to Resume Output but Strike Lingers


Honda Motor Co said it would resume building cars in China after a supplier of exhaust systems contained a labor dispute, but workers at another parts maker planned to keep striking for a third day.

The latest labor troubles for Honda flared in the Pearl River Delta factory town of Zhongshan, where workers at a unit of Honda Lock circled parts of the factory perimeter fence, shouting demands for higher wages, watched by local police who blockaded roads and barred journalists from getting close.

Several workers interviewed by Reuters said they were demanding an annual wage hike of not less than 15 percent, along with improved benefits, greater freedom to organize independent labor unions and promises from management not to lay off any of the strikers.

"We're definitely going to strike tomorrow (Friday)," said one of a flood of workers streaming out of the gates in the late afternoon. "Our wages are too low."

Earlier, a Honda Lock official in Japan said shipments of locks would be unaffected for at least a day or two, with enough in stock, but he said a prolonged dispute could disrupt the supply to Honda's car plants.

"We're still gathering information, and we don't know when the negotiations will end," Honda Lock's Hirotoshi Sato said.

The fresh labor troubles for Honda have once again clouded the firm's production outlook in China, after the apparent settlement of two earlier strikes at auto parts suppliers.

Strikes are usually stamped out quickly in China by stability-obsessed officials. But more disputes have been erupting lately, as workers in the world's manufacturing hub are emboldened by substantial wage hikes made by the likes of Foxconn, owned by Taiwan's Hon Hai Precision Industry Co.

Japan's No.2 automaker and iPhone maker Foxconn International Holdings (2038.HK) have been the most prominent companies hit by a growing string of disputes across China between workers resentful of income disparities and employers grappling with rising costs.

Honda, which sold 17 percent of its cars in China last year, has idled its four local factories on and off since May 24, since a first strike at a wholly owned transmissions maker in the city of Foshan, part of China's Pearl River Delta, which makes about a third of the country's exports.

A second strike, at a maker of exhaust pipes and other parts, also in Foshan, ended late on Wednesday, and the plant's Japanese parent said that with production back to normal, shipments to Honda's suspended factories would return to normal on Friday.

The truce could prove to be fragile, with workers at the plant saying differences remain over key conditions, including pay.

Honda had halted production on Wednesday and Thursday at two assembly plants that build the Accord, Fit, Odyssey and City, and said it would resume work on Friday.

One auto analyst said he expected wage hike concessions to have a limited impact on Honda's profits because labor costs accounted for just 5-6 percent of its total revenue even in high-cost Japan.

"If we assume wages in China are between one-fifth and one-third those in Japan, the cost of factory floor workers in China comes to around 2 percent of sales," JPMorgan analyst Kohei Takahashi wrote in a report.

"Assuming factory wages in China were raised a uniform 30 percent, we estimate the impact on the China operating margin would be (a decline of) 0.6 percent."

He estimated that Honda lost about 20,000 vehicles in output from the strikes, likely hitting its Chinese operating profit by about 12 billion yen ($131 million). Honda said it hoped to make up for lost production through overtime and other means.

Some executives say demands for higher pay are inevitable as China's economy gallops ahead.

"We had far worse labor strife in Japan when our economy was booming decades ago," Mitsubishi Motors Corp President Osamu Masuko told Reuters this week.

"It's natural for China to go through this phase as its economy expands. Even so, you don't see anyone pulling out of China. That's not an option because of the market's growth."

Honda shares ended virtually flat on Thursday, while the Nikkei average gained 1.1 percent.

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