After losing Europe, GM Korea eyes new markets

GM Korea's $40 million expanded design center has doubled in size and will take on many new tasks.
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INCHEON, South Korea -- Just more than a year ago, General Motors' massive operation in South Korea was flying high, churning out 40 percent of all Chevrolets sold worldwide.

In February 2013, GM said it would plow $7.3 billion into its local engineering center, design studio and four assembly plants over five years.

Then things began to unravel.

The labor union struck for higher pay and reduced working hours. The South Korean won surged in value against foreign currencies, sapping the competitiveness of GM's exports.

But perhaps the biggest blow came in December, when GM decided to pull Chevrolet from Europe, saddling GM Korea with 150,000 units of excess capacity.

Korean media bemoaned the demise of GM and the outlook for jobs.

But Sergio Rocha, the 35-year GM engineering veteran who runs GM Korea, hustled to adjust to the times. The company compromised with unions on slowing output, implemented white-collar buyouts and is now eyeing new export markets such as Australia as substitutes for lost European sales.

Rocha, who is Brazilian, also delivered record sales of 151,341 vehicles in Korea last year and a fourth straight year of rising market share. GM now has a 10 percent share, making it the country's No. 3 player.

"I have zero intent of losing volume, share or profitability," the GM Korea CEO told Automotive News. "GM Korea is moving in the right direction."

GM's newly expanded Korean design center -- which opened April 25 at a cost of $40 million -- is proof that the Detroit carmaker is committed to its local footprint, Rocha says.

The studio doubled in size and will take on a host of new tasks, from full-scale modeling to 3-D printing, as the carmaker aims to inject more international perspective into its styling.

Rocha: "Moving in the right direction."

Still, Korea is a GM unit in flux. It was once positioned as a low-cost production hub with an expertise in small cars unmatched by Detroit. Now Korea is losing its edge as labor costs rise and global r&d centers master small-car techniques.

But Rocha has parlayed some negatives into positives.

This year GM Korea began implementing a new work schedule that aims to have plants running 16 hours a day, instead of 20. The goal is reducing night work by bunching shifts together.

Reducing work time by four hours will cut output by 100,000 units a year, helping offset the 150,000 in lost sales created by Chevy's retreat in Europe, Rocha said.

"It matches with the Chevrolet Europe decision we have made," he said. "It's a natural hedge, unfortunately."

Meanwhile, GM's decision in December to end manufacturing in Australia could open the road to more GM exports from Korea to that market and others Australia served.

Both adjustments will take years. GM will stop selling Chevrolet in Europe by the end of 2016, and GM will pull the plug on its Australian lines in 2017.

GM Korea is already scaling back. Late last year, it initiated an early retirement program for salaried workers. About 200 accepted, out of the 6,000 reportedly eligible.

GM also targeted cuts at its Gunsan plant, which has annual capacity of 196,500 units and makes the Cruze small car and Orlando crossover.

Through a compromise with the union, GM kept two shifts and all regular workers by slowing output to 35 jobs per hour, from 50, Rocha said. The alternative was eliminating one shift. The adjustment, which began in April, trims 60,000 units a year.

"We reached an agreement. We did a drop in volume," Rocha said. "We need to move from confrontation to collaboration."

Still, unions are wary of GM's long-term intent. They note that GM Korea has decided not to build the next-generation Cruze at Gunsan and has yet to rule on the fate of the next-generation Aveo small car.

"The union is exerting itself to secure new car programs and future prospects. These are very important initiatives that will determine GM Korea's future," Jeong Jong-hwan, chairman of the union's GM branch, said at the design center opening. "It is extremely critical that we go beyond focusing on designing cars. We need to also focus on expanding our development capabilities."

The expanded Korea design center is now GM's third-biggest styling hub, after centers in the United States and Brazil. The center's staff of 200 will support exterior and interior styling, digital design and studio engineering for GM's global vehicle programs.

Among its new capabilities and equipment:

• A bigger virtual reality studio that allows for simultaneous real-time design reviews with GM's 10 global design centers.

• A dramatic increase in studio space and clay modeling mills.

• A new outdoor viewing patio with three vehicle turntables.

• Capability for finished interior and exterior modeling.

• Facilities for full sewing and seat trimming.

"Trust me, they will be very busy. That's both production design and advanced design," Ed Welburn, GM vice president for global design, said at the opening ceremony. "The new facility will allow them to take on far more advanced design work."

GM Korea has led design of such cars as the Chevrolet Sonic, Spark and Cruze, as well as the Trax and Captiva crossovers. It is also an engineering hub for products such as electric vehicles. On its to-do list: a successor to the Chevy Spark electric car.

GM Korea traces its roots to GM's 2001 investment in then-struggling Korean automaker Daewoo Motors. But some Koreans see the American company as having looser ties to the local market than homegrown giants Hyundai Motor Co. and Kia Motors Corp.

"There are many rumors that GM is leaving Korea," South Korea's Minister of Trade, Industry and Energy Yoon Sang-jick said at the design center's opening ceremony.

GM's expanded studio, however, shows otherwise, he said. "Many regard Hyundai-Kia as the only Korean OEM," Yoon said. "But GM Korea is definitely part of the Korean auto industry."

You can reach Hans Greimel at hgreimel@crain.com. -- Follow Hans on Twitter

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