South Africa Auto Workers Win Raise

THE WALL STREET JOURNAL

South Africa Auto Workers Win Raise

By DEVON MAYLIE and PATRICK MCGROARTY

 

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Truck drivers strike in Cape Town on Thursday.

JOHANNESBURG—Toyota Motor Corp. 7203.TO -0.20% agreed to raise wages at its South African plant following a three-day illegal strike, a move that ends a costly disruption for the Japanese auto maker and signals that walkouts are paying off for workers in the continent's largest economy.

The National Union of Metalworkers of South Africa, which represents auto workers, said Toyota agreed on Thursday to increase hourly wages by 5.7% at its plant in Durban, where the company makes cars, trucks and minibuses. The strike wasn't permitted under South African labor laws because the union hadn't informed the company of its intention to strike, yet the union intervened to resolve the dispute.

Toyota said an agreement was reached to end the strike, but declined to comment on details of the deal. The company said employees would return to work on Friday, and that it had lost 2,428 vehicles worth of production, about 14% of its monthly average, during the wildcat strike, which started Monday.

The strike marked the first big work stoppage in South Africa's manufacturing sector and came amid a continuing wave of unrest at the country's mines.

The Toyota wage increase, following South African platinum miner Lonmin LMI.LN +5.01% PLC's decision to raise wages last month to end a six-week illegal strike at its Marikana mine, suggested that workers are likely to continue hold out for better pay.

"What happened at Marikana has emboldened people," said Chris Gilmour, an investment analyst with Absa Private Client Management. "People who aren't earning a lot are being hit with higher fuel and food prices so they think they have nothing to lose now."

Strikes have continued at some of the country's biggest platinum and gold mines, stemming in part from efforts by rival labor unions to retain members or win new ones.

Anglo American Platinum Ltd., the world's biggest producer of the metal, said this week its Rustenburg mines remain shut while violence has escalated with protesters clashing with police.

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South Africa's labor minister has been involved in talks with mining companies and unions and other industries on strike, such as the trucking sector. A spokesman for the labor department said the burden for resolving the unrest remained with the companies and the unions. "Sometimes there's not much the department can do," a spokesman for Labor Minister Mildred Oliphant said.

South Africa's factories represent a sensitive spot for the economy.

Manufacturing accounts for 15% of the country's gross domestic product, and the government has been keen to show that big-name manufacturers can use the country as a base to expand into the rest of the continent. After emerging Asia, Africa is the fastest-growing region in the world and home to a new middle class.

Other car makers were watching closely for signs of labor unrest. Auto factories, which account for 10% of South Africa's manufacturing output, play a crucial part in helping the government achieve its goals of reducing unemployment—now hovering around 25%. Along with Toyota and General Motors Co., GM -0.04% Ford Motor Co., F +0.15% BMW AG BMW.XE +0.09% and Nissan Motor Co. 7201.TO -1.90% produce cars in the country mostly for export.

But the current turmoil and rising costs remain a concern for companies. "Any kind of industrial action is a concern," says Denise van Huyssteen, a spokeswoman for General Motors in South Africa. "It sends all the wrong messages."

Business confidence in South Africa declined in September to near a decade low. South Africa's purchasing-managers index, a survey of private companies' spending on goods and services, also fell in September to a three-year low, signaling the expectation that production will drop in the months ahead.

South Africa's trade deficit grew to $1.5 billion in August from $790 million in July, thanks to plummeting demand from the European Union.

Labor unrest threatens to compound strains from weak overseas demand, said Hugo Pienaar, senior economist at the Bureau of Economic Research. "It's a bit of a double whammy for the manufacturing sector," he said.

Toyota is fending off factory troubles beyond South Africa. In September, it cut back production in China as orders and sales dropped amid anti-Japanese protests. In South Africa, Toyota is among many companies feeling the pain from striking workers.

Foxtec-Ikhwezi (Pty) Ltd., a small company that makes suspension struts for Daimler AG DAI.XE +0.10% in the port city of East London, had already seen business fall 8% this year before a trucking strike cut off its access to most of the aluminum it needs to make parts for Mercedes plants in South Africa, Europe and China.

If the strike goes on, Foxtec will have to stop production next week, said executive director Pieter Bosch.

"The mining industry has set some very dangerous precedents for manufacturers and for the whole country in general," Mr. Bosch said. "That could have unintended consequences for the balance of the economy."

South Africa's currency, the rand, fell to its weakest level in a month on news of widening strikes. On Thursday afternoon the rand traded as high as 8.50 to the dollar, down more than 2% since the start of this week.

A weaker currency should make life easier for manufacturers, because it makes their products cheaper to customers abroad. But South Africa's central bank chief noted this week that the dynamic doesn't work if no one wants to buy those cheaper products.

"South Africa can produce all these things but if you've got more than half the euro-zone countries in recession, you haven't got a market," said Gill Marcus, governor of South Africa's Reserve Bank.

Write to Devon Maylie at devon.maylie@dowjones.com and Patrick McGroarty at patrick.mcgroarty@dowjones.com