GM Daewoo to Move Small Car Assembly to China by 2010

GM Daewoo has said that it plans to move its production facility for the Matiz subcompact car to China by 2010. It also says it wants to gradually move assembly lines for mid-sized cars to China and India as well.

On February 27, this newspaper had an exclusive interview with the company’s marketing director Lee Hyun-il on Jeju Island after the company’s motor show for its new Lacetti Wagon model. He said, “Labor costs and land prices in Korea are very high. Production costs in Korea are over 20% higher than those in China, even when the transportation cost is accounted for. So we have already started working on moving our factories to China and India.”

He said, “Given a 3-year gap in assembling technology between Korea and China, it will be possible to manufacture cars in China and then import them back to Korea within 3 years.”

Regarding gradually moving assembly lines to China, he said, “Economically speaking, it makes more sense to move right away, but Korean consumers’ bias against Chinese cars says otherwise.”

The reason why GM Daewoo wants to move its Matiz assembly line to China first is the fact that the price of the car is so low that its profit margin is 3% of the selling price and the margin is getting smaller year by year.

The company’s senior official said, “Our market share in Korea is only about 7% and we have few reasons to stay in Korea. Under the circumstances, it is inevitable to move our production facilities for medium and large cars overseas.”

The company, however, plans to keep its R&D center in Korea. It thinks its technology and wages are competitive even when compared with companies in the U.S and Europe. The carmaker said, “Even though we may move our production lines to foreign countries, we can still operate our R&D center, which develops new models and important technologies, in Korea.”

What this means is that the company’s R&D sector can grow bigger if enough highly educated human resources are provided.

However, considering the fact that China’s car companies are producing cars in collaboration with the world’s leading companies, the future of the company’s R&D is not that rosy.

Bok Deuk-gyu of the Samsung Economic Research Institute said, “Japanese carmaker Honda re-imports its cars from China and Thailand. If GM thinks going to China is better, then GM Daewoo can move to China anytime.”

bell@donga.com changkim@donga.com