SEOUL (Reuters) - Hyundai Motor's 005380.KS talks to build a low-cost carmaking factory with a local government suffered a setback on Wednesday as the South Korean automaker rejected proposed revisions to certain terms related to wage negotiations.

Workers from Hyundai Motor labour union attend a protest against an agreement to outsource the production of a mini SUV to a joint venture in Gwangju, in front of their plant in Ulsan, South Korea, December 5, 2018. Yonhap via REUTERS

Hyundai and the southwestern city of Gwangju had reached a preliminary deal on Tuesday for the factory that included an annual wage of 35 million won ($31,492) for employees of the joint venture (JV), which is less than half of the average 92 million won that existing Hyundai workers earn.

The plan was given a green light by the city’s consultative body on Wednesday on condition that Hyundai would revise certain terms that allow the JV to skip annual wage negotiations with its workers, a city official said.

Hyundai’s existing workers hold wage talks every year and often resort to strikes to get a better pay.

Hyundai rejected the city’s revised proposals.

“We hope Gwangju city will take actions to restore trust, so that we can proceed with investment discussions smoothly,” the automaker said in a statement.

The factory Hyundai and Gwangju are looking to build would have an annual capacity of 100,000 mini-SUVs starting 2021. The proposal, however, has raised tensions with Hyundai’s unionized workers who fear the JV will lead to job losses and wage cuts.

The JV, a first for South Korea’s biggest automaker, will help Hyundai cut both costs and reliance on unionized workers.

It would also better align Hyundai with the government of President Moon Jae-in, which is struggling to keep manufacturing jobs from moving overseas amid U.S. President Donald Trump’s threats to impose hefty tariffs on vehicle imports.

Gwangju is home to Hyundai affiliate Kia Motors' 000270.KS factories and the political stronghold of the liberal Moon government, which has made job creation its top election pledge.

Hyundai is expected to invest 53 billion won ($47.5 million)for a 19 percent stake in the JV, while Gwangju will spend 59 billion won for a 21 percent stake. The remaining 167 billion won will be provided by suppliers and the local economy.

“BAD JOBS”

The JV, which the city government said will create 12,000 jobs, has already met with disapproval from Hyundai and Kia labor unions. The unions said they will idle factories for four hours on Thursday.

Hyundai’s more than 50,000-member union on Tuesday warned of a full strike, fearing the move may take away production and jobs from the company’s plants in Ulsan and other cities.

Hundreds of union members wearing red headbands rallied at Hyundai’s factories in the southeastern city of Ulsan with banners reading “South Korea’s auto industry will go bankrupt”.

The project will lead to “bad jobs which bring down workers’ wages by half”, said Ha Bu-young, Hyundai’s Korean union chief.

The labor union said an additional plant will exacerbate excess production capacity at the automaker, which is struggling with sluggish exports to the United States and other countries and posted a plunge in quarterly net profit.

Hyundai’s Korean production fell to 1.65 million vehicles last year, the lowest since 2009, data from the country’s car association shows.

Kia’s union has also called for a withdrawal of the JV plan, saying it will add pressure to the niche, shrinking mini-vehicle segment in which it holds a 69 percent share.