Rising Costs Fueling Concerns Among Carmakers in S. Korea | Be Korea-savvy

Rising Costs Fueling Concerns Among Carmakers in S. Korea

(image: GM Korea)

(image: GM Korea)

SEOUL, Feb. 12 (Korea Bizwire)Rising costs have become a growing source of concern for carmakers operating in South Korea, with GM Korea Co. now eyeing financial assistance from the government here, an association said Monday.

Carmakers in the country generally have lower hourly vehicle production rates than rivals in Japan and the United States, according to the Korea Automobile Manufacturers Association (KAMA).

Struggling with such woes, General Motors Co. has recently asked the Seoul government to give financial support to its loss-making Korean unit GM Korea. A capital increase is one of the options that may be considered for the unit, according to local media reports, although the company hasn’t confirm this.

GM holds a 77 percent stake in GM Korea and the state-run Korea Development Bank owns a 17 percent stake in the maker of the Cruze sedan and the Captiva SUV.

Early last week, GM CEO Mary Barra said the Korean unit must take steps to be “viable.” Referring to GM Korea, she said, “We’re going to have to take actions going forward to have a viable business.”

In a parliamentary inquiry Friday, Finance Minister Kim Dong-yeon said the government is looking at “various possibilities,” without providing details on a future course of action.

Last year, GM Korea saw its overall sales fall 12 percent to 524,547 vehicles from 597,165 units a year earlier due mainly to rising manufacturing costs and weak sales of its models. No new model has been added to its local lineup since the all-new Cruze compact was launched early last year.

GM CEO’s remarks last week reignited concerns of GM’s possible withdrawal from Korea as the Detroit-based automaker has reorganized its global businesses by shutting down plants in emerging markets, such as Russia and India, in the past three years and selling its German unit Opel and U.K. brand Vauxhall to France’s PSA Group last year.

Meanwhile, Hyundai Motor Co. and its affiliate Kia Motors Corp. are no strangers to the problems facing the country’s auto industry. The two together form the world’s fifth-biggest carmaker by sales.

Hyundai and Kia’s operating profit margins stood at 5.3 percent and 0.9 percent, respectively, in the July-September period in 2017, ranking them seventh and 11th, respectively, among the world’s 11 carmakers. That’s partly due to high labor costs and production losses caused by frequent strikes at their domestic plants.

The country’s five carmakers that also include Renault Samsung Motors Corp. and SsangYong Motor Co. offered an average of 92.13 million won (US$85,000) in wages to their workers in 2016, higher than 91.04 million won at Toyota Motor Corp. and 80.4 million won at Volkswagen Group, KAMA said.

The ratio of labor costs out of the five carmakers’ overall sales reached 12.2 percent in 2016, exceeding 9.5 percent at Volkswagen and 7.8 percent at Toyota Motor, industry watchers said.

Reflecting reduced output at Hyundai and Kia, South Korea’s auto industry reported 4.11 million vehicles built in the country in 2017, down 2.7 percent from a year earlier. Local car production fell 7.2 percent in the previous year, KAMA said.

South Korea was the world’s sixth-biggest automobile producing country in the world after China, the U.S., Japan, Germany and India last year, the association said.


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