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GM Korea Says Korea Is Design and R&D Base and 5th Largest Market for GM
Scoffing at Withdrawal Rumor
GM Korea Says Korea Is Design and R&D Base and 5th Largest Market for GM
  • By Michael Herh
  • August 14, 2017, 03:00
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GM Korea refuted the GM's withdrawal from the Korean market, claiming that GM Korea is a design and R&D base and Korea is the world's fifth largest market to the global GM headquarters.
GM Korea refuted the GM's withdrawal from the Korean market, claiming that GM Korea is a design and R&D base and Korea is the world's fifth largest market to the global GM headquarters.

 

GM's withdrawal from the Korean market is being regarded as a nearly accepted fact as domestic automakers are facing the greatest crisis ever due to sluggish domestic consumption and exports, labor disputes, and controversy over ordinary wages.

GM Korea, however, refuted the idea, claiming that to the global GM headquarters, GM Korea is a design and R&D base and Korea is the world's fifth largest market.

In fact, the rumor of GM’s withdrawal from the Korean market did not start this year but has been repeated every year for years. The strongest rationale for this prospect is a massive global restructuring of GM.

GM will withdrew its business from Europe, closed down its plants in Australia and Indonesia, halt or shrink production in Thailand and Russia, sold off Opel (affiliate), withdraw from the Indian market and pulled the Chevrolet brand out of South Africa from the end of 2013 to May of this year.

The second factor is cost burdens such as GM Korea's management deterioration and rising labor costs. GM Korea posted a cumulative deficit of two trillion won over three years from 2014 to last year due to the weaker-than-expected popularity of new cars and a decline in exports to Europe. In addition, according to GM Korea, its current payroll is 2.5 times as much as that of 2002 and its total labor costs in 2015 shot up more than 50 percent from 2010.

GM Korea claims that the results of lawsuits over ordinary wages impacted a rise in wages. In 2013 and 2014, it was ruled that there was no obligation for back pays in ordinary wage lawsuits with the labor union, but its labor cost burden increased after the recognition bonuses and others as ordinary wages, the automaker explained.

Under these circumstances, especially this year, a forecast that GM, the largest shareholder of GM Korea, may dispose its stake in GM Korea after October is strengthening a possibility that GM will leave Korea. The deadline is coming to GM’s promise to maintain the right to the management of GM Koreas for 15 years when GM bought Daewoo Motors.

The possibility of GM’s withdrawal was made much stronger as James Kim, CEO of Korea GM abruptly expressed his intension to quit GM Korea and the Korea Development Bank, the second largest shareholder of GM Korea mentioned the possibility in a report.

However, "There is a faint possibility that GM will shut down GM Korea," GM Korea officials say in unison. As the ground, they pointed a remark made by Stephan Jacoby, president of overseas business at GM last month which emphasized the importance of GM Korea.

At the time, "GM maintains its global business with a focus on profitability," Jacoby said. “In addition to enhancing performance in each market, GM seeks growth opportunities from a long-term perspective. This strategy involves Korea."

"GM Korea is playing an important role as a production, design and engineering hub for GM," Jacoby said. “GM will focus on improving profitability in the Korean market and will continue to work with its business partners to improve its competitiveness and profitability."

At the moment, GM Korea is running four factories in Korea and one of GM’s seven general business sites in the world with a design center, a technical research center and a proving ground for new product development. In particular, GM Korea’s design center renovated with investment of 40 billion won in 2014 is the third largest among design centers of the GM group.

Recently, cases where business sites in multiple countries participate in the development of GM products increased but GM Korea is leading the development of the mini-car 'Spark' and small sports utility vehicle “'Trax” among others. The design of the Bolt EV, an electric car which was launched also in Korea, is the work of Korean employees at GM Korea’s Design Center in Bupyeong, Incheon.

"When the process of selling European brand Opel to the Peugeot Citroen (PSA) group is completed, GM Korea may take the lead in GM's development of global compact models, solidifying its position,” said a representative of GM Korea.

GM Korea sold 1.26 million cars last year of which about 85% (1.07 million units) were exported to more than 120 countries.

Domestic sales also increased from 140,000 units in 2014 to 180,275 last year. In terms of the Chevrolet brand, Korea is the fifth largest market after the US (2.1 million), China (500,000), Brazil (350,000) and Mexico (290,000).

However, a need not for a withdrawal but for a business efficiency work and restructuring possibility is felt inside GM Korea. "We have already mapped out internal plans for next year's business. As we cannot know what behind-the-scenes agreement was reached regarding the sale of Daewoo Motors, the withdrawal possibility is slim,” a GM Korea said. “In line with GM's business restructuring goal, GM Korea may begin profitability improvement work or a restructuring such as pruning facilities and human resources to reduce losses.