It has finally happened. GM Korea, which had denied its pull-out rumor saying “We are here to say” at the foreign-investment enterprise luncheon held by the presidential office Cheong Wa Dae in January 2014, made an announcement Tuesday that it would close its factory in Gunsan, North Jeolla Province. Closing one out of four factories is not an overall withdrawal. Given 3 trillion won accumulated deficit during the past four years and no measures available to recover competitiveness, however, it is inevitable to concern that GM Korea’s decision is only the beginning of withdrawing the manufacturing lines in Korea.
GM Korea’s labor union of, which requested unreasonable raise in wages, will face unemployment as the factory is to be closed. From 2014 to 2016, which saw continuous deficit due to slow sales, the labor union increased the basic salary by 3 to 5 percent each year through strikes. The average wage per person in GM Korea was 87 million won in 2016 and the company’s total labor cost surged by more than 50 percent compared to 2010. This lead to a loss of 10,000 jobs that were employed to 135 first and second subcontractors in the Gunsan region, not to mention some 2,000 employees of the factory in Gunsan.
Some analyze that General Motors, which is the largest shareholder of GM Korea, has exercised “brinkmanship” of closing the factory in Gunsan to pressure the South Korean government.
South Korea, which had lost its place as fifth in car production to India in 2016, witnessed a 2.7 percent decrease in production year-on-year last year with 4,114,913 vehicles. The difference in the number of vehicles produced between South Korea and Mexico, which is catching up fast, decreased from 620,000 to 40,000 in 2016. It is too early to know whether closing the factory in Gunsan will lead to overall withdrawal of GM Korea. However, a business is not sustainable in a high cost – low efficiency structure, where the wage is skyrocketing amid sluggish sales. The harsh warning targeted towards the South Korean car industry still does not seem to be taken seriously by those who are about to get their pants on fire.
Se-Jin Jung email@example.com