Labour Costs and Union Trouble Could Force General Motors to Axe South Korea Business

Rising labour costs and union woes could ultimately force General Motors to shut production in South Korea despite the region initially being a key manufacturing hub that helped the US automaker avoid bankruptcy.

Around 25% of cars sold by GM globally are built in South Korea however a sharp increase in labour costs over the past decade have turned the country into an expensive base for production.

The automaker has already begun reducing its reliance on South Korea as a profit centre after GM pledged to build the newer versions of a compact car and a subcompact SUV elsewhere. The report has prompted concerns from labour union leaders that a flurry of factories could face eventual closure in South Korea.

According to a Reuters report, GM Korea's management has forecast the labour cost per vehicle to rise to $1,133 (£731.82 , €851.37) this year. That compares to an average $677 per vehicle across GM's international operations.

In addition, the local currency's relative strength over the past year, and the recent round of geopolitical tensions on the Korean peninsula, have forced GM to "rebalance" its risk-exposure in South Korea.

Change in Strategy

While reports show that the underlying cost of production in South Korea is rising, GM Korea's labour union leaders say that this could just be a costly bluffing tactic.

Union leaders say that GM management is only bluffing when it comes to closing factories as they want to intimidate workers from seeking further pay hikes. Just last month, GM Korea reached an annual wage settlement that included bonuses of 10 million won ($9,000) per person. The July accord came after a partial strike at the Korean unit resulted in a production loss of 48,000 vehicles or $92m.

"Korea has an edge in cost compared with the likes of Australia and Germany," said labour union spokesman Choi Jong-hak.

"Management is making threats to pressure us and make us cooperate."

However, GM's pullout from South Korea is underway. Development of the next-generation Chevrolet Cruze compact car has been moved to the US, said the Reuters report. Last year, GM said the car would be built outside Korea and Spain is rumoured to be the preferred choice.

The automaker has similar plans for the Opel Mokka, a subcompact SUV built in Korea and sold in Europe, China and the US.

GM made South Korea one of its main production hubs after its 2002 purchase of insolvent local carmaker Daewoo Motors. The failed Korean firm's small car technology helped the US auto giant recover from bankruptcy.