[Exclusive] Indefinite Full Strike After 10 Years... What Is Happening at Hanon Systems?

Over 100 Office Manager-Level Employees Left Since Last Year
Labor and Management Wage Negotiations Acknowledge Serious Workforce Drain
Disagreement Over Wage Increase Leads to Prolonged Strike
Concerns Over Eco-Friendly Vehicle Supply Disruptions at Hyundai, GM, Ford, Benz, BMW, and Others

Hanon Systems, the world's second-largest automotive climate control system company, is suffering internal strife due to an indefinite full-scale strike by its labor union. This stems from aggressive wage negotiations by the union amid intensified outflow of office workers since last year. As labor-management negotiations drag on, the strike has continued for over a month. Consequently, concerns have arisen that Hyundai Motor and Kia, which receive electric vehicle thermal management parts from Hanon Systems, may face production disruptions.

According to comprehensive reporting on the 16th, the Hanon Systems union began an indefinite full strike on the 12th of last month. While there have been short-term strikes lasting a day or two in recent years, this is the first long-term full strike in over a decade. With both production and office workers participating, about 90% of the production lines have stopped, and responding to customers has become difficult. So far, the company has managed with accumulated inventory, but if the strike continues longer, the ripple effects could impact production at Hyundai Motor and Kia.

Over 100 Office Workers Left in the Past Two Years... "Severe Talent Drain"

The Hanon Systems union has focused this strike on improving the treatment of office workers rather than production staff. This is based on the recognition that the outflow of office personnel at Hanon Systems has reached a critical level. It is known that over 100 mid-level office workers have left from last year through this year. Both labor and management agree on the seriousness of the talent drain as skilled personnel have moved to competitors.

In response, labor and management began wage negotiations earlier than usual, starting in February. However, even by the negotiation on the 9th, they failed to narrow differences over the wage increase rate. The union pointed out that the starting salary for Hanon Systems office workers has been frozen for years. Because the base salary is low, even with promotions, salaries remain lower than those in the same industry, which leads to talent leaving for competitors.

The management also agrees and is positively considering wage increases in negotiations. However, labor and management have yet to reach a consensus on the increase rate. Additionally, with Hanon Systems facing an impending sale, opinions on wage increases are reportedly divided within the management team.

Hanon Systems supplies thermal management heat pumps for Hyundai Motor's Ioniq 5, 6, and 7, Genesis electric vehicles GV60, GV70, and G80. It also provides eco-friendly vehicle parts to global overseas automakers such as GM Chevrolet Bolt EV, Ford Escape HEV, BMW iX, iX3, i4, Mercedes-Benz EQS, EQE, EQA, and Volvo XC40 Recharge.

Hanon Systems Facing Sale, Controversy Over Dividends Exceeding Net Profit

Hanon Systems has become the center of controversy due to a high dividend payout ratio of 940% (the ratio of dividends to net income). The union highlights that while employee wages have been frozen for years, dividends have been steadily increasing. Dividends exceeding net income lead to deterioration of the financial structure. This has led to criticism that the major shareholder, private equity firm Hahn & Company, is aggressively recovering funds ahead of the sale.

Last year, Hanon Systems' dividend payout ratio was 940%. It paid out 192.1 billion KRW in dividends, which is 9.4 times its net income of 20.4 billion KRW. Of this, Hahn & Company, the major shareholder, took 97 billion KRW, half of the total dividends. Over the past five years, Hanon Systems maintained a dividend payout ratio of around 50-60%. Even compared to the automotive sector average payout ratio of about 30%, this is high. However, last year, net income sharply dropped to one-fifteenth of the previous year, while dividends remained at the usual level, causing the payout ratio to soar to the 900% range.

Reflecting these financial indicators, credit rating agencies downgraded Hanon Systems' credit rating from AA to AA- last year. Korea Credit Rating cited reasons for the downgrade including overseas production facility expansion, increased investment in eco-friendly vehicle parts development and advancement, and the burden of annual dividends totaling 200 billion KRW.

A representative of the Hanon Systems union stated, "Dividends continue to be paid out quarterly ahead of the sale, but costs for future vehicle technology development personnel are not increasing," adding, "This strike is a decision to retain talent who will carry the company's long-term vision."