General Motors (GM) has confirmed that it is moving a large portion of production of the Mokka subcompact sport utility vehicle (SUV) from South Korea to Spain, reports Reuters. Starting from the latter half of next year, GM's European division, Opel, will produce the vehicle at its Zaragoza plant in Spain, which also houses production of the Corsa compact and Meriva compact van. The move is aimed at utilising the spare capacity of the plant as well as reducing delivery times for buyers. "We'll be able to produce the Mokka in greater numbers and supply our customers more quickly," said Opel chief executive Karl-Thomas Neumann. GM will invest USD80 million in Zaragoza to prepare the plant for Mokka production. By relocating production and investing in the Zaragoza plant, GM has assured the future of the facility and the 5,800 people employed there.
Meanwhile, the automaker's tumultuous relationship with its South Korean labour union continues as efforts to bridge the divide between the union and management remain fruitless. The two parties met yesterday (10 July) but talks ended without a successful conclusion. This has paved the way for a planned 10-hour shutdown today (11 July) at GM's four South Korean plants. The company's workers, represented by the Korean Metal Workers' Union (KMWU), have been staging partial strikes since 4 July . So far, GM has lost more than 136 hours of production at its South Korean plants, excluding lost overtime. Workers are demanding a KRW130,498 (USD114.6) increase in their monthly base wage, as well as a bonus equivalent to 300% of the base wage plus a lump-sum payment of KRW6 million.
Outlook and implications
GM's announcement that it is moving part of Mokka production from South Korea to Spain confirms earlier reports. In a statement to IHS Automotive last month, GM Korea confirmed that it was "conducting engineering studies to determine where additional small SUVs will be produced beyond the current locations". GM also added that "small SUVs are one of the fastest-growing segments globally. We are growing our share in that market and it is, of course, always an option to look for ways to make production and capacity utilisation more efficient." The move is certainly a positive one for the Opel plant as far as capacity utilisation is concerned. Weak sales of the ageing Corsa compact in Europe have freed up some capacity at the plant, as has the slow performance of the Meriva compact van, whose sales have been hit by the general slowdown in the market. In addition, GM stands to benefit by removing the logistical costs of shipping the products from South Korea to Europe.
Although this is positive for GM in Europe, it is likely to give rise to further discontent at the company's militant labour union in South Korea, which is already at loggerheads with management during the annual wage negotiations. GM Korea's relations with its union have worsened since last November when it announced that it would not build the next-generation Cruze in South Korea. Unlike with the Chevrolet Cruze, the move to shift Mokka production is more intended to match supply with demand in a market where GM continues to bleed money. In this scenario, it is only logical for the automaker to boost production of a model which is in demand.
Even though GM announced plans in February to invest about KRW8 trillion in South Korea over the next five years to develop globally competitive products, subsequent developments such as the potential shift of Aveo production to Spain have angered the union, making it doubt the automaker's commitment to its South Korean unit. The union is also upset that the automaker did not take follow-up steps on its earlier decision to end overnight shifts starting next January. Although GM temporarily halted night-shift production in March, it did not disclose how it would make up for the shortfall in output. Meanwhile, as negotiations and production disruptions continue, GM is losing out on its global production capacity. GM Korea is an important production base, accounting for nearly 40% of all Chevrolet vehicles sold globally. GM's South Korean sales in the first half of this year declined by 8.8% year-on-year (y/y) to 65,203 units on account of a slowing economy, and prolonged production disruption has the potential to hurt exports, making matters worse in an already difficult year.
| Analyst Contact Details: | Anil Sharma |
