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In the past, Alabama has given Hyundai hundreds of millions of dollars in subsidies.
At a politically delicate moment, Hyundai is trying to keep quiet an unfolding scandal over worker exploitation.
The Korean car giant is currently asking the Biden administration to loosen the rules on a consumer tax credit for electric vehicles, recently enhanced in August’s Inflation Reduction Act, that now requires qualifying cars to be assembled in North America. If Hyundai could get the IRA provisions delayed until its U.S. factories are up and running in 2025, it would help the company compete in the roaring new market for electric vehicles.
Not helping its diplomatic efforts: Reuters recently exposed that children as young as 12 were working at the metal stamping plant of SMART Alabama LLC, a supplier in Montgomery, Alabama, that was majority-owned by Hyundai. And earlier this month, the U.S. Department of Labor found further instances of child labor at another Hyundai supplier, SL Alabama, in Alexander City.
In an attempt to get a grip on the scandal, Hyundai last week announced that it would “sever relations” with the companies.
In response, the United Auto Workers (UAW) argued that dropping the suppliers will put Alabama workers out of jobs, without addressing the core problem of relying on temp staffing agencies and exploitative subcontractors.
Calling this a critical test for the Biden administration, the union asked the White House not to award any subsidies or loans to Hyundai until it agrees to worker standards and oversight. Biden should tell Hyundai it needs to meet with workers and community groups, the UAW said, and resolve workplace issues as a prerequisite for federal support.
In the past, Alabama has given Hyundai hundreds of millions of dollars in subsidies. It lured the company to locate in Montgomery with a $252.8 million incentive package in 2002, and offered another $59 million in inducements in 2018. The Alabama Department of Labor has launched an investigation in reaction to the scandal.
“The feds, like the state, should limit all their incentives. As long as they find them doing these things, you shouldn’t give them a dime,” Mitchell Smith, director of UAW Region 8, told the Prospect in an interview.
Hyundai’s move to cut ties with SL Alabama and SMART Alabama is unhelpful, Smith argued, since Hyundai and its sister automaker Kia are supplied by a number of similar factories. It is a common practice for home-country suppliers to follow foreign automakers overseas and set up shop near their manufacturing operations. “Eighty percent of the suppliers between Hyundai and Kia on I-85 are all joint Korean suppliers,” Smith estimated, referring to an automaking corridor that spans the interstate from Valley, Alabama, to Greenville, Georgia.
“You know what happens to be in that [supplier] plant? Local Alabamans, who pay taxes to the state,” Smith said. “You’re paying taxes to your state, and your state has given Hyundai money and incentives. But when your employer uses child labor, the CEO’s solution to stop that is, I cut you out of a job. That’s insane.”
It is likely that laid-off workers will be rehired, as Hyundai shifts production to other plants. But the intervening period could be disruptive.
The automaker is intensifying a push to gain access to the Inflation Reduction Act’s consumer tax credits.
Hyundai faces a bevy of challenges over its employment practices. At SMART Alabama, a 14-year-old Guatemalan girl worked with her two brothers, aged 12 and 15, the Reuters investigation found. They were part of a wider group of child workers, many of whom did not attend school while working at the plant.
“SMART likely knew many of these families hesitate to report alleged violations due to their immigration status,” reads a letter from community and labor groups in Alabama.
The labor complaints plaguing Hyundai are not restricted to the use of child workers. According to a class action lawsuit filed earlier this year, SMART was also involved in a bait-and-switch immigration scam. Through a labor recruiter, SMART hired about 40 Mexican engineers under the pretext of giving them engineering jobs, but when they arrived, offered them low-paid assembly-line work.
And in a lawsuit filed last week, a Black former executive at Hyundai’s Montgomery plant argues that her brief promotion to the company’s executive team was “nothing more than a tactic to counter union organizing at the plant, and that since the union threat had abated, she was expendable.”
Asked about the UAW’s comments on the findings of child labor, Hyundai said in a statement, “Hyundai is committed to its suppliers who comply with the long standing federal, state, and local labor laws and will not hesitate to move to sever its relationship with any supplier found violating our stringent policies.”
Meanwhile, the automaker is intensifying a push to gain access to the IRA’s consumer tax credits, after the legislation blocked its consumers from accessing up to $7,500 back for electric vehicles assembled in North America. It is about to break ground on a $5.5 billion facility in Georgia, but production will not start until 2025, making Hyundai cars ineligible for subsidies until then.
Sen. Raphael Warnock, a Georgia Democrat facing a close re-election race, last month introduced legislation that would delay the IRA’s made-in-North America requirement until 2026. That bill is unlikely to pass. But South Korean officials, including President Yoon Suk Yeol, have raised the issue directly with Biden. Whether Washington relaxes the new requirements will be an early signal in the coming fight over extending manufacturing waivers for other trade partners.
The next several months are something of an existential moment for the United Auto Workers, with contracts up for renewal next year, and as the union looks to organize new electric-vehicle plants flush with federal money.
