General Motors is slowly cutting its presence in South Korea amidst surging labour costs and militant unionism, Reuters reports, citing the US carmaker’s recent decisions to move production of newer models away from the world’s seventh-largest exporting nation.
The report adds that GM has told its South Korean labour union that it would not produce the next-gen Chevrolet Cruze in the country, although it has not said where it plans to shift production to (Spain is rumoured). The current model (pictured above) however, would continue to be built there as a low-cost car for developing markets.
Two individuals familiar with product development plans have told Reuters that the carmaker has also moved the Cruze’s lead development team out of Korea to its technical centre near Detroit.
As for the updated Opel Mokka/Buick Encore model (current model pictured above), plans exist for a big chunk of production to be moved to Spain from the second half of next year, initially using kits from Korea. Like the Cruze, the current model would continue on in Korea.
“We need to make sure we mitigate risk in (South Korea), not over the next two to three years but over time, not to become too dependent on one product source,” an unnamed source told the news agency.
Reuters reports that GM Korea’s labour cost per vehicle is set to hit US$1,133 (RM3,700) this year, compared to an average US$677 (RM2,200) across GM’s global operations. The manufacturing sector’s total labour compensation per employee in South Korea has jumped 119% from 1999 to 2009.
The issue of sharply-increasing labour costs has been made worse by the South Korean won’s recent relative strength. But GM Korea’s labour union believes the talk of pulling out is a bluff designed to scare workers against asking for pay rises, the report says.
Last year, the union had the worst walkout in a decade, resulting in a production loss of 48,000 vehicles or US$92 million (RM301 million), according to GM Korea. This eventually led to an annual wage settlement last month that included bonuses of 10 million won (RM29,500) per member.
Sources have told Reuters that the biggest potential threat to GM Korea’s continued competitiveness is union legal action seeking to redefine the meaning of ‘regular wage.’
A South Korean high court ruled last year that regularly-paid bonuses should be counted as part of a worker’s ‘base pay,’ which is used to calculate overtime and pension payments.
The supreme court is currently reviewing the ruling, but GM Korea CEO Sergio Rocha has said that labour costs would rise 10-12% if it had to count bonuses as part of a worker’s regular pay.
South Korea has been one of GM’s main production hubs since it purchased Daewoo in 2002. The nation accounts for about a fifth of the US carmaker’s 9.5 million cars produced globally per year. More than 80% of the GM cars made there are exported.