Hyundai Motor (005380.KS), facing a domestic sales slump, is pushing to introduce a flexible production system to boost manufacturing efficiency. The automaker also plans to launch around 20 new vehicle projects this year to create a turning point for an earnings rebound in the second half.
According to industry sources on Tuesday, Hyundai Motor held a closed-door management briefing and an Employment Security Committee meeting with union leadership last month, where it disclosed these plans.
Hyundai Motor proposed to the union a joint labor-management response to expand the flexible production system in order to resolve volume imbalances between plants. A flexible production system allows manufacturing processes to be operated elastically according to demand. For instance, Hyundai Motor produces the Avante at its Ulsan No. 3 plant, but under the new system, when orders increase, the model could also be produced on other lines such as the No. 1 or No. 2 plant.
Currently, vehicles cannot be produced on other lines without the union's consent. As a result, even when orders surge following a new model launch, certain lines are overwhelmed with work while others run empty conveyor belts in what is known as "gong-pitch" operation. The inability to fulfill increased orders in time has also led to recurring delivery delays of several months.
Hyundai Motor's labor and management temporarily introduced a flexible production system limited to the Palisade in 2019, when orders surged sharply after its launch, but they have yet to institutionalize the practice. Hyundai Motor also told the union that large-scale reassignments are necessary to operate process personnel efficiently.
Management also shared with the union its plan to maximize the "new model effect" by carrying out around 20 new vehicle projects this year. While the company did not disclose specific details of each project, the plan appears to encompass the new Avante model scheduled for launch in the second half and powertrain variants such as the G80 hybrid.
"The union pointed out that Hyundai Motor's vehicle designs are less appealing than Kia's and that new model launches are delayed compared to Kia," an industry official said. "Management shared the development status of new models to address the union's complaints."
Hyundai Motor is actively consulting with the union on production and sales strategies because of the continued sales slump this year. The automaker's first-quarter operating profit plunged 30.8% from a year earlier to 2.5147 trillion won. While the impact of U.S. auto tariffs was significant, domestic sales in its home market have also fallen short of previous years, dimming the annual earnings outlook. Hyundai Motor's domestic sales in May fell 23.1% from a year earlier to just 45,364 units.
The problem is that it remains uncertain whether the Hyundai Motor union will accept management's reform plans. The union is even seeking to nullify employment flexibility measures previously agreed upon through labor-management consensus, citing employment security, deepening management's concerns.
In fact, during the latest negotiations, the union heightened pressure by demanding the abolition of the "Agreement on Process Personnel for Retirees" signed in 2019. The agreement's core is to adjust the scale of regular hiring in consideration of the inevitability of workforce adjustments due to technological innovations such as robots. While the collective bargaining agreement stipulates that vacancies created by retirement should in principle be filled through new regular hires, retirees are instead rehired in contract or commissioned positions.
In broader terms, the agreement was designed to reduce new hiring to address the issue of surplus personnel, but the union's demand to scrap the deal has heightened tensions between labor and management. The fact that Hyundai Motor is pursuing the redevelopment of its Ulsan plant and the relocation of domestic production volumes to the U.S. to improve processes is another factor fueling the union's anxiety.
