Friday, February 28, 2020
Renault Samsung Motors Standing at a Crossroads
Renault Group to Reorganize Regional Headquarters
Renault Samsung Motors Standing at a Crossroads
  • By Jung Min-hee
  • March 21, 2019, 12:25
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Renault Group in France will reorganize its regional headquarters system, transferring Renault Samsung Motors from the Asia and Pacific headquarters to the Africa, the Middle East, India and the Pacific headquarters.

Renault Samsung Motors is standing at a crossroads. Renault Group in France has recently announced a plan to reorganize its regional headquarters system, which would transfer Renault Samsung Motors from the Asia and Pacific headquarters to the Africa, the Middle East, India and the Pacific headquarters.

The management of Renault Samsung Motors said the organizational overhaul would offer the company an opportunity to diversify its export markets. However, if the ongoing labor-management conflict is prolonged, Renault Samsung Motors would not be able to secure enough production volume and, as a result, face a crisis.

Renault Group will reorganize its regional headquarters system on April 1. Currently, the Asia and the Pacific headquarters include Korea, Japan, Australia, Southeast Asia and the South Pacific. But this headquarters will be expanded into the African, Middle Eastern, Indian and Pacific headquarters. As for China, the group has decided to set up a separate headquarters in China.

Renault Samsung Motors believes that this reorganization will considerably help the carmaker to diversify its export markets and grow steadily as its markets will extend beyond Asia to Africa, the Middle East, India and the Pacific. Africa and India are known to be the regions where the Renault-Nissan-Mitsubishi alliance can create considerable synergies. Therefore, this change can boost the advantages of Renault Samsung Motors’ plant in Busan, Korea as the plant can produce both Renault and Nissan models.

"It will be difficult at the moment for Renault Samsung Motors to export its cars to new markets such as India that are covered by the expanded headquarters, but after two or three years, it will be a big opportunity for Renault Samsung Motors," a Renault Samsung official said. “Renault Technology Korea is expected to expand its roles as the core R&D base in Renault Group going beyond its current status as the Asian R&D hub." Renault Samsung Motors’s Busan plant has a production capacity of 300,000 units a year based on three shifts, but the plant rolled out only 210,000 units last year. In the long term, Renault Samsung believes that it will be able to ramp up its production volume by acquiring new export volume to Southeast Asia and the Middle East.

However, in order for Renault Samsung Motors to take advantage of the organizational overhaul, its cooperation with the labor union is vital. Renault Samsung Motors has virtually failed to sign a new contract with Renault Group for production of the next model to the Nissan Rogue as its management and labor failed to end their dispute by the deadline set by the group. Renault Samsung has been producing the popular SUV on a consignment basis, but this contract will come to an end this September.

Renault Samsung is pushing forward with a plan to temporarily increase production of the SM6 and the QM6 until receiving the next production order but it is insufficient to replace the current Rogue production volume. Last year, the Rogue accounted for nearly 50 percent of Renault Samsung's total domestic production of 215,680 units.

Renault Samsung, which had initially pushed to start the production of the post-Rogue model from this September, has been trying to persuade its global headquarters to allow it to start new model production at the beginning of 2020, but it has not been easy, either.

"If the management accepts demands from the labor union, the competitiveness of the Busan factory maintaining at the upper level among affiliates of the Renault Group, will lower to the bottom of the standings," a Renault Samsung official said.

Currently, the Busan plant's units per hour (UPH) stands at 66, the highest level among group affiliates (based on data of fitting-out yards, but the average monthly income of workers at the Busan factory workers is 78 million won, at the highest level in the group. Renault Samsung Motors's global competitiveness will have no choice but to fall if the management accepts the labor union’s proposal to put an additional 200 workers into production work and slow down the speed of production lines, the management claimed.