Honda Faces New China Strike and Market Share Threat

Honda Motor (HMC) was hit by a second strike in China on Monday. A factory in the southern part of the country was shuttered as workers walked off the job. According toThe New York Times, "The factory supplies exhaust parts for Guangqi Honda, a joint car assembly venture between Honda and Guangzhou Automobile of China." The action follows an earlier strike that just ended last week at a different Honda factory in China.

Honda says the workers are asking for a 75% pay increase. The strike by employees is part, some analysts say, of a nationwide movement in the People's Republic for factory workers to get higher compensation. That, in turn, will raise China's labor costs and the prices it charges for exports. If China's trade partners resist buying the higher-cost goods, China could face an economic slowdown.

But there is more at stake for Honda than the issue of workers' wages. Last year 13.6 million cars were sold in the most populous nation in the world, the China Association of Automobile Manufacturers reported. That allowed China to pass the U.S. as the No.1 car market. Nationwide sales are expected to increase by as much as 20% this year.

A Fight for Market Share

Honda cannot afford to be out of the Chinese car market for long. It's up against GM and Volkswagen, the two largest manufacturers in the country. In April, GM and its joint venture partners reported sales of over 213,00 vehicles. A number of other global auto companies are competing for market share. Ford (F) sold 26,000 cars in April. Local car companies are also fighting for market share. Honda's sales target in China for the year is 520,000 vehicles, which would put it ahead of Ford, but well behind the market leaders.

The Chinese market is so large and growing so rapidly that Honda's fight for a larger part of car sales there would be hindered by ongoing worker strikes. That makes it more likely that Honda's employees have the leverage they need to get higher wages. And, if Honda succumbs, it is only a matter of time before other car companies face the same labor issues.