Productivity Improvement Needed
While SsangYong Motor's future is on the line, concerns are growing about the future of GM Korea and Renault Samsung Motor, the remaining foreign carmakers producing cars in Korea.
The two companies' parents are implementing belt-tightening measures amid a massive conversion to electrification. Yet their subsidiaries in Korea fell into a deficit due to high labor costs, radical labor unions and sluggish sales. Just as India's Mahindra & Mahindra is moving to withdraw from SsangYong Motor despite huge investment losses, observers say that GM and Renault Group may choose to pull out of Korea in a worst-case scenario.
GM Korea and Renault Samsung suffered losses in 2020. GM Korea fell into negative territory for the seventh consecutive year, while Renault Samsung returned to a loss for the first time in eight years. GM Korea sold only 368,453 units at home and abroad in 2020, down 11.7 percent from 2019. Compared to 2018 (462,871 units), the sales figure shrank by about 100,000 units. A more serious situation is facing Renault Samsung. In 2020, it posted 116,166 units in sales, down 34.5 percent from the previous year. The figure was halved from 227,577 units in 2018.
A bigger problem than the drops in sales is that Korea is losing its attractiveness to foreign automakers. This is connected to the management directions of these companies' headquarters. GM announced on Jan. 28 (local time) that it will stop producing and selling cars with internal combustion engines by 2035. Instead, the U.S. automaker will spend 30 trillion won on developing electric vehicles and autonomous driving technology. In CES 2021, GM announced new businesses centered on electric vehicles and its transition into an eco-friendly car powerhouse to the world.
GM Korea needs to receive electric vehicle production orders from GM to survive in the long run, but Korea is gradually losing ground as a production base. GM Korea failed to meet the expectations for a surplus of GM headquarters in 2020 due to the COVID-19 pandemic and the labor union's strike.
The same goes for Renault Samsung. Renault Group announced on Jan. 14 its belt-tightening strategy "Renaulution," which emphasized securing cash and profitability. The strategy even includes the reduction of R&D spending which holds the key to the survival and growth of automakers.
"We have to boost our profitability," Renault Group said during the announcement of Renaulution, pressuring Renault Samsung. This is in contrast to Renault Group’s remarks that it will make full use of the competitiveness of factories in Spain, Morocco and Romania.
"The labor cost of our Spanish factory is 62 percent of that of our factory in Busan, Korea. Producing a car in the Spanish factory costs about US$1,100 less than the Busan factory," said Christophe Boutet, chief financial officer of Renault Samsung at the Industrial Development Forum held on Jan. 28. The CFO said, "We don't want to leave Korea, but we desperately need the help of both the labor union and the Korean government to do business in Korea."
Earlier on Jan. 21, Renault Samsung announced a plan to lay off 40 percent of its executives and implement a voluntary retirement program for executives and employees. However, the company's labor union protested against the plan.
An industry insider noted that GM Korea and Renault Samsung simply import and sell electric vehicles such as the Bolt and the ZOE, which means that GM and Renault Group do not regard Korea as a base for producing their future cars. Labor unions of GM Korea and Renault Samsung need to be wary of this policy, he said.