GM Korea fights two-front war

The South Korea-made Chevrolet Malibu sedan has helped increase GM Korea’s domestic sales.

SEOUL — Changing times mean changing tactics for General Motors’ massive South Korean hub, which is being hammered by a double whammy of slumping exports and surging costs.

To offset slowing overseas shipments, GM Korea Co. is trying to boost sales at home, where South Korean consumers are buying foreign brands at record levels. The push comes after bosses in Detroit installed a new local CEO from outside the auto industry in a bet he can breathe innovation into GM’s Korean business.

James Kim was poached from Microsoft Korea in June 2015 and named CEO on Jan. 1. He replaces veteran engineering and production guru Sergio Rocha, who was transferred to South America.

Kim: CEO has a tough task.

Kim’s task is tough: Find new demand for vehicles churned out by GM Korea’s four assembly plants and work with an oft-contentious union to rein in costs. 

“My years of experience in the IT industry provide the company a different perspective in terms of its business and sales,” Kim said in a written reply to questions from Automotive News. “My previous experience is also important as the entire automotive industry heads into a new era of mobility where information technology is crucially required.”

GM Korea lost one of its reasons for being when headquarters decided in late 2013 to pull the plug on Chevrolet in Europe. In recent years, GM Korea’s assembly plants have accounted for as much as 20 percent of GM’s worldwide sales volume. But Chevy’s European retreat saddled GM Korea with excess capacity of 150,000 vehicles a year. 

By boosting sales in Korea and finding new export markets, Rocha helped recoup some of that volume. For example, GM Korea now exports the Chevrolet Trax and Buick Encore subcompact cross-overs and the Chevrolet Spark minicar to the U.S. 

But its factories are still running far below their combined straight-time capacity of 758,000 vehicles a year. Indeed, exports slumped to 463,468 vehicles in 2015, from a record 828,144 in 2007. 

On the plus side, GM Korea’s domestic sales climbed 2.6 percent to a record 158,404 in 2015. Sales are on pace for another record in 2016, rising 21 percent to 101,139 through July, the company said. 

Domestic sales have been helped by the launch of the redesigned Spark hatchback and Malibu sedan, both of which are manufactured locally, and by importing the Impala sedan and Camaro sports car. GM Korea is widening its offering of Cadillacs with the addition of the XT5 crossover and CT6 sedan this month. 

The goal, Kim said, is to boost local market share into the double digits this year and keep it there. GM’s share of a South Korean market dominated by homegrown giants Hyundai and Kia was 9.5 percent through July, the company said. GM Korea achieved an all-time high market share of 10.7 percent in 2006.

GM Korea’s CEO must find new demand for vehicles produced by GM Korea’s four assembly plants, including its Bupyeong plant, above.

Imports have gradually carved out a larger share of Korea’s car market. Imports claimed 15 percent of sales through July, down from 16 percent in all of 2015 but up from 14 percent in all of 2014, according to the Korea Automobile Importers and Distributors Association. Imports claimed a 10 percent share in 2012, after rising steadily from 0.4 percent of the market in 2000. 

“The Korean market is very stable and not subject to external variables,” Kim said, noting that the company has not been caught up in South Korea’s diesel emissions dragnet, a crackdown by regulators that has torpedoed rival Volkswagen’s business in the country. 

“We are aiming to expand our sales this year for the double-digit market share in Korea as part of our focus on sustainable growth,” said Kim, who studied at the University of California at Los Angeles before getting his MBA from Harvard Business School. Kim is chairman of the American Chamber of Commerce in Korea. 

GM Korea has also restructured its local dealer network to improve sales. 

One wild card remains relations with GM’s labor union. This year, monthslong contract talks focused on wages were punctuated by sporadic strikes. 

“The rising cost of labor represents a major challenge for Korean industry overall,” Kim said. “The cost of labor has drastically increased in recent years and has eroded the benefit of the company’s high level of productivity.” 

Controlling costs will help GM Korea keep its workload and its jobs, he said. 

“If GM Korea and our union can enhance the company’s competitiveness,” Kim said, “we will have adequate manufacturing potential for the longer term.”

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