Pressures on the Government
The South Korean government and GM are about to initiate negotiations on GM Korea. Prior to the negotiations, GM International President Barry Engle visited the National Assembly of South Korea on February 20 and requested government support again. The government, in response, said that it would discuss any support only after due diligence is initiated and GM Korea comes up with a business recovery plan.
“The possibility is still open that two new and globally competitive models can be produced in GM Korea’s plants located in Bupyeong and Changwon,” the president of GM International said at the National Assembly, continuing, “If so, a significant contribution will be made to the South Korean economy as a whole as well as the local automobile market and GM is hoping to protect hundreds of thousands of jobs.” Still, he put pressure on the government by saying that GM will wait only until the end of this month.
South Korean Deputy Prime Minister Kim Dong-yeon said in response that GM has yet to make an official request and details cannot be discussed yet, re-stressing the necessity of the business recovery plan and due diligence. Minister of Trade, Industry & Energy Baek Woon-kyu also said GM should address the unclear parts of its business first.
Survival of GM Korea Hinges on New Car Assignment
The possibility remarked by the president of GM International is drawing much attention with regard to the future of GM Korea. According to industry sources, it does not mean an additional investment from the GM headquarters to GM Korea. Rather, it can be regarded as the minimum condition for survival after the recent shutdown of GM Korea’s plant in Gunsan.
Although the president did not mention which will be the two models, those in the industry are saying that the new models are likely to be two out of the follow-up model of the Trax dubbed 9BUX, that of the Spark dubbed M2-2, and a whole new CUV.
GM Korea is unlikely to be able to increase its production volume even if the production of the two models is assigned to itself. GM Korea cannot be maintained without the follow-up model of the Trax. Without it, the company’s annual production volume plummets to 240,000 units and the capacity utilization of the Bupyeong Plant, which is over 100% now, drops to below 30%.
Exactly the same applies to the follow-up model of the Spark. At present, the Spark accounts for 95% of the annual production volume of the Changwon Plant. With the production of the Damas and the Rabo scheduled to be stopped next year for environmental regulations, the plant cannot survive without the follow-up.
Industry insiders point out that GM’s willingness to maintain GM Korea can be fathomed by whether or not the production of the new CUV will be assigned to GM Korea. Still, GM Korea is unlikely to get it because of its high-cost structure and militant union. GM Korea workers’ average annual salary is 87 million won (US$83,000) whereas that of Volkswagen workers is 4.6 million won (US$4,100) less than that.
The union is unlikely to let the salary be cut during this year’s wage negotiations. With the Gunsan Plant already shut down, GM Korea cannot maintain an annual production volume of 500,000 units as it wishes without the CUV. GM did not produce the Impala in South Korea for exactly the same reasons and the Equinox, which is scheduled to be released in the country in April, is not going to be produced there for the same reasons.