Korean Production Base Weakened
The production base of GM Korea is shrinking. With the export volume expected to drop after the withdrawal of Chevrolet from the European market, the company’s Bupyeong plant will reduce engine production by 24 percent. Industry watchers express concerns over the American car maker’s decreasing output in Korea.
According to industry sources on March 16, GM Korea recently gave notice to the labor union that it will reduce this year’s engine production in the Bupyeong plant by 24 percent, or 137,000 units. The reduction will begin as early as June. This is because the company will no longer use high- displacement engines produced and exported by GM Korea.
GM exports 75,000 units to Mexico, which is the highest. The Bupyeong engine production facility was in operation for 25 days this month, but it will be operated for just five days a month starting from June. If the GM headquarters ordered GM Korea to carry out research and development for the next-generation engines, the plant can produce and supply new engines. However, as GM Korea failed to develop the next-generation engines, it will be bound to reduce the output. When GM Korea fails to secure additional orders, it is also inevitable to downsize the workforce in production.
GM Korea is also expected to be directly hit by the withdrawal of its Chevrolet brand from Europe. France's PSA Group, the maker of Peugeot and Citroen cars, recently acquired Opel, which is a European brand of GM, for 2 billion euro (US$2.15 billion or 2.43 trillion won). GM Korea has so far produced the Spark at the Changwon plant and exported it in the name of Karl (Vauxhall Viva) to Opel. Last year, it exported 57,458 cars. The company also manufactured the Trax, a mini sport utility vehicle (SUV), at the Bupyeong plant and supplied it in the name of the Mokka to the European market. Its supplies reached 160,000 units, including fully and not fully assembled cars. The local market predicts that the Spark will not be supplied from 2019 and the Trax from 2021.
The export volume of GM Korea is on decline every year. The company exported 416,890 cars last year, down 10 percent from 463,468 in 2015. Its exports of complete knock down (CKD) continuously decreased from 1,021,858 units in 2014 to 791,231 in 2015 and 662,674 last year. GM Korea’s supplies to global markets are five times larger than the domestic market. If the company fails to seek a new export outlet, it will be difficult to survive with domestic sales alone. In fact, GM Korea marked 300 billion to 400 billion won (US$265.49 million to 353.98 million) deficits last year. The company posted net losses in three years in a row. So, there have been rumors that the GM headquarters will withdraw from the Korean market after it purchases the 17.02 percent shares in GM Korea owned by the Korea Development Bank (KDB) when a ban on the sale of the stake is lifted at the end of this year, and then sells all of the shares
Lee Hang-Koo, a senior research fellow at state-funded Korea Institute for Industrial Economics & Trade, said, “GM Korea, which has the low production competitiveness due to high wages, is no longer attractive production base to management of the GM headquarters. It should be remembered that GM can withdraw whenever it cannot find the market attractive as it did in Australia in the past.” An official from GM Korea said, “Due to recent changes in the engine business environment at the Bupyeong plant, its production will temporarily drop. However, we are planning to inject the next-generation engines and seeking various ways to increase the output.”