Following labor unrest and increasing costs at their operations in South Korea, according to Reuters’ sources General Motors has begun to reevaluate GM Korea’s role in the giant automaker’s production plans. Currently GM Korea, formerly Daewoo, builds about 20% of GM’s global production. The already announced shifting of production of Opel’s Mokka small crossover to the Zaragoza facility in Spain starting in the second half of 2014 may portend other changes in GM Korea’s role. Both foreign and domestic Korean automakers have expressed concern over rapidly rising wages in that country. The strong Korean currency, the won, coupled with those rising labor costs have made Korea one of the more expensive places for GM to build cars.
One of Reuters’ GM sources told the news agency, ”We need to make sure we mitigate risk in (South Korea), not over the next 2-3 years but over time, not to become too dependent on one product source. If something goes wrong in Korea, whether it is cost, politics, or unions, it has an immediate impact.” General Motors is the third largest automaker in South Korea, with about 17,000 workers in five facilities that currently produce about 1.4 million vehicles a year.
GM Korea is one of the Detroit based car company’s production hubs, particularly for developing markets, though the Korean built Aveo/Sonic is sold in Europe and North America as well. At least 80% of GM Korea’s products are exported, according to some sources, over 90%. GM Korea also has had an important role in developing GM’s smaller car platforms but Reuters’ sources say that development of GM’s compact Chevy Cruze’s platform has been moved to the automaker’s Tech Center in suburban Detroit. GM is also building four new assembly plants in China, which could supplant Korea as a GM export hub.
A spokesman for the union representing GM Korea’s production workers, who received a $9,000 signing bonus in their most recent contract, said that the company is bluffing. ”Our view is that management is making threats to pressure us and make us cooperate,” Korean Metal Workers Union spokesman Choi Jong-hak said. Strikes before the settlement cost GM Korea, according to the company, about $92 million in lost production, about 48,000 vehicles. During the labor strife, union members raided the office of GM Korea CFO Stephen Small, brandishing steel pipes while demanding bigger meal subsidies, to which the company later agreed.
GM already told the union that the next generation Chevrolet Cruze would not be assembled in Korea, though the existing version will continue to be made there to be sold in emerging markets. The Zaragoza facility is said to be one of the plants under consideration for next gen Cruze production (along with Ohio’s Lordstown facility that builds Cruzes for the North American market).
GM’s current small car success (the Sonic is currently the second best-selling car in its North American segment) has its roots in South Korea, which has provided the company with much of its small car product development over the past decade. Location in Asia and what were low labor costs helped GM grow sales in China and other emerging markets. That was then. Today GM’s labor cost per vehicle in Korea is $1,133, according to information GM Korea provided to their labor union. That figure is almost 70% higher than the $677 average for the rest of GM’s international operations. Korean labor costs per vehicle are now about what it costs GM to build a car in Russia or Spain, ”the lower end of the scale of what GM considers as a high-cost country”, a Reuters’ source within GM said.
Labor compensation per employee went up 119% in South Korea in the decade from 2000 to 2009, compared to 40% in the U.S. and 27% in Europe. Rising labor costs in South Korea even prompted GM CEO Dan Akerson to raise the issue with Republic of Korea president Park Geun-hye when she was on a state visit to Washington D.C. earlier this year.
Other car companies operating in South Korea have experienced labor unrest. Union delegates at Hyundai Motor Co. voted to strike the automaker just last Friday, with a full member vote on whether to walk out or not scheduled to take place this Wednesday. GM, Hyundai and others with Korean production are also concerned about a legal case before the South Korean supreme court involving the meaning of “regular wage”. The decision would affect how overtime and pension payments are calculated. GM sources say it is potentially the biggest threat to that country’s industrial competitiveness and that a decision in favor of the union would raise GM Korea’s labor costs by at least 10%.