Varietes of Polarization – The Effects of Decarbonization on Work and Employment in the German and Korean Auto Industry

Abstract:

Objective: This article examines the transformation of the automotive industry from an international comparative perspective. Based on company case studies in carmakers and suppliers, it is scrutinized how the decarbonization of the powertrain affects work and employment in South Korea and Germany. In both countries the transformation poses particular challenges for the automotive industry as companies were in the past heavily dependent on the internal combustion engine (in contrast, for example, to Japanese companies which much earlier experimented with alternative drive systems). For German carmakers, the engineering quality of the ICU engine was a key differentiating factor in global competition while the rapid catch-up process of the Korean automotive industry was based on vehicles with combustion engines. What both countries also have in common is that the automotive industry is currently concentrating its transformation efforts on battery-electric vehicles (BEV). German manufacturers such as Volkswagen, Mercedes-Daimler and BMW have stuck with the combustion engine longer than their international competitors and are now concentrating their catch-up activities on BEV. Hyundai/Kia previously pursued a strategy of technological openness, but in view of the regulations in China and the European Union, the company is now concentrating its efforts on BEV.

Findings: The comparative analysis shows that decarbonization in Germany and Korea is accompanied by a parallel polarization of work and employment. In both countries, the impact on the core workforces of carmakers is comparatively limited. OEMs are investing in the development of new BEV related products and in new machines while being committed to go through the transformation with the existing workforces. For them, employment and working conditions are thus relatively constant. Some minor deskilling is visible as the new production lines in general have a higher degree of automation, its extent, however, is so far limited. More importantly, in both countries carmakers’ core workforces are shrinking. Companies use retirement to gradually reduce the core workforce. Next to the core workforces, however, there is a pronounced fragmentation of work and employment in Germany and Korea (which did not begin with decarbonization, but which is being accelerated by the transformation). Firstly, contingent employment is expanding in carmakers. The simultaneous production of combustion and BEV related c products temporarily creates an additional need for personnel, which is in both countries met with flexible forms of employment. Secondly, insecure and lower-paid forms of employment are growing in supplier companies. Suppliers, on the one hand, who mainly have supplied ICU products and whose expertise lies in metalworking have difficulties to develop new products. Many are explicitly or implicitly concentrating on a "last man standing" strategy and are focusing on selling ICU-related products as long as possible. The intense price competition in this shrinking segment results in deteriorating working and employment conditions. Suppliers on the other hand who have invested in the development of BEV products and in new machines are suffering from the intense competition with new suppliers and the uncertain future prospects in the field of battery electric products. Decarbonization is this deepening the ongoing fragmentation of work and employment.

Despite the overarching parallels in the general development of work and employment, the German-Korean comparison also reveals interesting differences leading to somewhat different trajectories Three factors need to be mentioned: supplier relations, industrial relations and the labor market. (1) Supplier relations traditionally differ between Germany and South Korea. Compared to the arms’ length contractual relationships in Germany, supplier relationships in Korea are captive and personalized. The personalized relationships between OEMs and 1st tier suppliers and between 1st tier and 2nd tier suppliers still have a comparatively strong position in the transformation process in Korea while the arms’ length relationships in Germany increase uncertainty for suppliers. (2) Industrial relations also differ greatly between the two countries - and these differences are shaping the course of the transformation. In Germany, the metal union supports works councils in small and medium suppliers to get access to relevant information and some forms of cooperation. Industrial relations in Korea block such activities. Company unions in small and medium-sized companies are largely left to their own devices in the transformation process and are dependent on information from management. (3) Differences in regulation and the current state of the labor market also influence the polarization trajectories in both countries. In Germany, make use of temporary agency workers and contract work in order to reduce costs and make employment more flexible. In Korea, carmakers are shifting more and more work to chaebol-internal suppliers and resort to temporary workers. Korean suppliers frequently use in-house subcontracting, often in conjunction with foreign workers.

Methods: Empirically, the article is based on more than 20 company case studies from Germany and South Korea conducted in 2022 and 2023. In carmakers and suppliers, production facilities were visited and interviews were conducted with management representatives (site managers, HR and production managers) as well as company interest groups and trade unions.