Will GM Korea quell exit rumors with new vehicle production?

GM Korea CEO Hector Villarreal, third from left, poses with the carmaker's salespeople at a retail location in Seoul, Feb. 28. Courtesy of GM Korea

General Motors (GM) Korea could localize production of some new strategic vehicles — co-developed with Hyundai Motor — to sustain its operations here amid unceasing rumors about a possible market exit, experts said Tuesday.

Last week, the two global carmakers made headlines with their plan to launch five jointly developed new cars for Latin and North America by 2028, though the production site remains undecided.

The timeline coincides with the deadline for GM Korea’s “mandatory” business operations under an earlier agreement with the Korean government. In 2018, the government provided 810 billion won ($582.8 million) in exchange for the carmaker’s commitment to maintain operations in Korea through the end of 2028.

Auto experts did not rule out the possibility of the company initiating production of some of the new models in Korea.

“GM Korea’s operating profit to sales ratio — a key barometer determining profitability of a firm — remains at a high level, so the carmaker’s headquarters may consider an option to localize production for possible hybrid models for its sustainable operations even after 2028, rather than pursuing a potential withdrawal from Korea,” said Kim Pil-soo, a professor of automotive technology at Daelim University College.

GM Korea's Trax Crossover compact SUV / Courtesy of GM Korea

It’s a possible outcome given that Hyundai Motor has strong competitiveness in developing hybrid cars and GM Korea’s union continues to urge its management to produce hybrid vehicles, according to the professor.

“As GM Korea’s deadline for its mandatory operations comes to an end in 2028, the carmaker will have to take further actions to quell rumors about its possible exit, and the localized production of hybrid cars can be a good option,” the professor said.

Lee Ho-geun, an automotive engineering professor at Daeduk University, agreed on the likelihood for GM Korea to pursue partial production of the new co-developed vehicles.

“The U.S. carmaker will be able to reduce its prime cost for the development and production of the new cars by achieving economies of scale with Hyundai Motor, which will help GM Korea reduce its tariff burden from the U.S.,” Lee said.

On top of that, GM Korea will also alleviate its labor risks by expanding its lineup of locally produced vehicles, according to the professor.

A GM Korea official said nothing specific has been confirmed over localized production for the new vehicles.

“Our headquarters have not reached any internal consensus over the specific location to assemble the new cars,” the official said.