Opting for India
General Motors (GM) USA has made the official announcement that it will reduce output to be assigned to its plants in Korea.
According to foreign press on May 4, Stefan Jacoby, executive vice president of consolidated international operations at GM, has recently said in an interview that the company will make India a new global manufacturing and export hub instead of Korea, where labor costs have ballooned in recent years. For GM Korea, which has been expecting that it will play a leading role as an Asian export hub in the future, it is a disappointing remark. South Korea has for years been a low-cost export hub for GM, producing 20 percent of the global output. However, labor costs in Korea have risen by more than 50 percent in the last five years, and the country has become one of the countries with high labor costs alongside Japan.
“We have no concrete plans to close factories in South Korea,” Jacoby said, “but, to remain competitive, GM Korea must find ways to drive efficiencies over time.” GM’s Korea factories produced 630,000 vehicles last year, but a capacity utilization rate of around 75 percent is too low to be profitable. This is why GM has ordered its plants in Korea to improve management several times. However, the company has often faced the opposition of its labor union.
Market research firm IHS has predicted that the output of GM Korea will decrease more than a third to only 365,000 units in 2025. The IHS said, “India will become a key global production and export hub for GM,” noting the country will partially replace South Korea as GM’s key Asian export base.
Jacoby said, “Thanks to the low labor costs in India, 30 percent of the output, about 170,000 units, will be exported. GM will increase the annual production capacity in India from the current 282,000 units to 570,000 units.” Moreover, GM plans to significantly boost the ratio of components made and bought locally to around 70 percent of the overall component content and release two new models for India.