Trial to Keep High Quality

South Korean parts suppliers provide top-quality products at a labor cost equivalent to one-third of that of American firms.
South Korean parts suppliers provide top-quality products at a labor cost equivalent to one-third of that of American firms.

GM Korea decided to invest US$1 billion in technical support for South Korean auto parts suppliers working with itself. Some in the industry are pointing out the necessity of continuous monitoring in that GM broke similar promises in the past.

Specifically, the money is scheduled to be invested with regard to the SUV and the CUV GM is going to produce in South Korea from 2021 and 2022, respectively. The investment is a part of the US$4.35 billion investment GM is going to make in South Korea from now on.

“The GM headquarters decided to stay in the South Korean market in view of the excellent competitiveness of the partner firms,” GM Korea explained concerning the background of the decision. The GM headquarters recently picked out the top 125 global parts suppliers and those included 27 South Korean, which were the second-largest in number behind American. “The South Korean firms provide top-quality products at a labor cost equivalent to one-third of that of American firms, which means the former are highly attractive for GM,” GM Korea added.

The investment decision of GM is a great boon to South Korean auto parts suppliers having a hard time due to a decline in the sale of automakers. According to the Financial Supervisory Service, the number of local auto parts manufacturers classified as restructuring targets increased from five to 16 between from 2016 to 2017.

GM Korea is going to invest US$1.6 billion in its Bupyeong and Changwon Plants, too. Last month, the GM headquarters announced so to replace production lines for new vehicle development, build a crash test facility, and so on while submitting its applications for foreign investment zone designation and investment plans to Incheon City and South Gyeongsang Province. The amount may be increased as the case may be. GM recently adjusted its total investment to be made in South Korea from US$2.8 billion to US$4.35 billion, saying it would invest more in facilities.

As mentioned above, it remains to be seen whether GM will keep its promise. Back in 2013, GM Korea announced that it would produce six future vehicle models, including an electric vehicle, and invest eight trillion won for five years. However, only three models have been produced by GM Korea so far.

In the meantime, the South Korean government and GM are about to wrap up their negotiations over the foreign investment zone designation issue, which is expected to be determined within this week. According to some insiders, GM’s investment plan does not fulfill the requirements for the designation and the government is likely to provide alternative supports by means of a tax cut or the like.

 

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