New Troubles For Honda, Toyota

Automakers Honda (Tokyo: 7267) and Volvo are having more headaches in China, as the former faced a strike at one of its plants and the latter had to deal with an ugly clash with its dealers over allegations of inflated sales figures. The 2 pieces of separate news are the latest problems for both companies, which have faced a steady series of recent issues in the world’s biggest car market.

Honda and other Japanese automakers are still reeling from a steep drop in their China sales after Chinese consumers boycotted the companies during a flare-up in a territorial dispute between Beijing and Tokyo last fall. Volvo, meanwhile, has struggled since the parent of Chinese automaker Geely (HKEx: 175) purchased the faded Swedish company in 2010.Let’s take a look first at the at Honda strike, which was surprisingly absent from many major headlines despite its ominous overtones. The strike began on March 18 at a plant making transmissions for Honda cars in southern Guangdong province, after workers were unhappy at the size of their raises after the Chinese New Year holiday. (English article) Management quickly stepped in and offered higher raises, convincing the plant’s 2,000 workers to return to work the next day.

The strike by itself doesn’t look too major and is unlikely to have any big impact on Honda’s China operations. But the action looks strikingly similar to what happened in Guangdong 3 years ago, when strikes broke out at a series of similar factories supplying parts to both Honda and Toyota (Tokyo: 7203).

Those strikes also broke out in the spring months after Chinese New Year, a popular time for such industrial actions as the winter weather recedes and people get back to work after the long holidays. In that instance, word of the strikes spread through the growing use of social media, emboldening workers at other factories to take similar action.

I have a strong feeling this won’t be the only strike we see in the region this year, and how the companies and local governments react will be crucial to determining how quickly and effectively future strikes are resolved. In this case it looks like Honda learned its lesson from the strikes 3 years ago and moved quickly to address workers’ grievances. While that approach worked in this situation, it could also embolden workers at other factories to make similar demands.

Meantime, media are reporting that Volvo had its own recent new China clash, with the Swedish automaker accusing its China dealers of inflating their sales to win cash rebates from the company. (English article) In this case the transgression by Volvo’s 150 China dealers looks relatively old, as it happened in 2011. The executive who told media about the clash is even trying to make it look like good news, saying that dealers actually underreported their sales in 2012 to compensate for the sales inflation the previous year. That means the company performed better in China last year than it previously thought, he said.

This conflict is just the latest in the near-nonstop series of clashes that have occurred between conservative Volvo managers in Sweden and their more aggressive and often less scrupulous counterparts in China. Those Swedish managers prefer to keep Volvo positioned as a mid-tier brand, while Geely wants to market it as a luxury name. The 2 sides have also clashed on production, with Geely pushing a plan to build a huge Volvo manufacturing base on China.

I honestly don’t see this culture clash subsiding anytime soon, which doesn’t look good for either Volvo or Geely. As a result, the road ahead for Volvo is likely to be rocky both globally and especially in China, as its Swedish management continues to clash with its Chinese masters on numerous fronts.

Bottom line: A strike at a Honda factory and a clash between Volvo and its China dealers bode poorly for both companies, and are likely to be followed by more similar issues.

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