Rising labor costs and a strengthening South Korean Won may
General Motors Company
) out of South Korea, according to Reuters. While the exit is
expected to take time, the company has been avoiding
manufacturing new versions of its Chevrolet Cruze and Opel Mokka
in the country. This is being viewed as the first step in the
automaker's withdrawal from South Korea.
General Motors has been having trouble with labor unions in
South Korea recently. Last month, labor strikes resulted in
production losses of over $90 million, forcing the company to
reach a wage settlement, including yearly bonuses of 10 million
Won ($9,000 million) per member. This will significantly add to
the already increasing labor costs in the country.
Moreover, a South Korean high court ruling from last year
states that the base pay of workers, which is used to calculate
overtime and pension payments, should include regularly paid
bonuses. This ruling is currently under review by the Supreme
Court. However, if it is approved by the court, it could lead to
a double-digit increase in General Motors' labor costs in the
General Motors currently manufactures about one-fifth of its
cars in South Korea, mostly for export. Thus, any problem faced
in the country impacts the company's performance.
However, labor union leaders have a divided opinion about the
accuracy of the report of General Motors' pullout from South
Korea. While some leaders believe that the company's diminishing
reliance on the country for manufacturing new models indicates
that it could close some manufacturing facilities in the country,
other leaders believe that the rumor is just a ploy by the
company to scare the union to avoid further wage hikes.
Nevertheless, General Motors is not the only car manufacturer
facing labor union trouble in South Korea. The union of
Hyundai Motor Co. Ltd.
) is reportedly planning a strike soon.
China and Spain are expected to be the gainers from General
Motors' decision. While the car maker has already revealed that a
large portion of the redesigned Opel Mokka (sold in China and
U.S. under the name Buick Encore) will be manufactured in Spain,
even the new model of Chevrolet Cruze is expected to be
manufactured in that country. Meanwhile, General Motors is
planning 4 new manufacturing facilities in China and will launch
about 17 new and upgraded car models through its Chinese joint
General Motors carries a Zacks Rank #3 (Hold). Some companies
in the auto industry that are worth considering are
Ford Motor Co.
). While Ford carries a Zacks Rank #2 (Buy), Volkswagen carries a
Zacks Rank #1 (Strong Buy).
FORD MOTOR CO (F): Free Stock Analysis Report
GENERAL MOTORS (GM): Free Stock Analysis
HYUNDAI MOTOR (HYMLF): Get Free Report
VOLKSWAGEN-ADR (VLKAY): Get Free Report
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