“Korean Auto Industry Struggling with High Wages and Low Productivity”

“The Korean automobile industry is beginning to fall behind Japan’s in price competitiveness,” Jean-Marie Hurtiger, CEO of Renault Samsung Motors, said during the unveiling ceremony of the “SM5 New Impression” held at the Hilton Resort in Gyeongnam Province Wednesday evening.

He said that the bright side to this was that if the Korean automobile industry can bring down wages and boost Productivity, it could eventually play a bigger role in the world automobile market. He was even more confident about the current status of Renault Samsung.

-How do you rate the competitiveness of the Korean automobile industry?

“It has been good so far. The problem is that it is losing its competitive edge amid rising wages, and falling Productivity and exchange rates.

Hurtiger said that around 2000, when Renault Samsung first entered the Korean market, it was cheaper to manufacture automobiles in Korea, but there is not that much difference between Korea and Japan in terms of cost now.

“It is cheaper to produce in Korea, but Productivity is higher in Japan.”

-What is the most urgent problem?

“We are comparing Korean and Japanese automobile parts manufacturers. The quality is higher in Japan.”

Renault Samsung recently changed its brake caliper supplier company from a Korean one to a Japanese one. It was decided that the parts from Japan were cheaper and of higher quality. Calipers from Japan are more than 10 percent cheaper than Korean products, even taking in account logistics costs and taxes.

-What other problems does the Korean automobile industry face?

“While manufacturing costs keep rising to match those of Japan’s, wages keep going up. Productivity is not improving either.”

He went on to say that wages in Korea would soon rise to meet those of Japan’s as well.

“Wages in Japan are stable, while wages in Korea are going up at a rate of six percent a year. Productivity is not improving, so in four or five years, production costs in Korea will be the same as those of Japan.”

-What will the Korean automobile industry be like in the future?

“You can apply Samsung Group Chairman Lee Kun-hee’s “sandwich theory” to the Korean automobile industry. Japan may become the place to go for high technology. China may become the place to go for cheap labor. Korea might end up losing its place.”

Hurtiger, who led the development process of the low price “Logan,” said that Renault would have no reason to produce a car like the Logan in Korea. We need to build cars like Logan in China, Southeast Asia, or East Europe, where low-wage workers abound.

This means that Korea no longer has any strength as a production center for cheaper cars. Hyundai Motors and GM Daewoo Auto & Technology have moved or are planning to move production facilities of low price cars to China or India.

-What do you think Renault Samsung Motors will face in the future?

“As a production center, Korea’s competitiveness is falling. Renault Samsung Motors, however, has good labor relations, and the quality of its manufacturing is better than any Renault-Nissan Group factories.” Renault Samsung Motors happens to be the only automobile company without a labor union in Korea.

Renault Group is very positive about investing in Korea. 20 percent of its total investment in 2008 and 2009 will go to Korea. Renault Group will make Korea a key production center for medium-size cars. It will also feature more Renault brand cars than Nissan brand cars.

Hurtiger concluded by saying, “Manufacturing quality is on the rise and the quality of workers is quite high in Korea. If problems like high wages and low Productivity are fixed I am sure Korea be a big force in the world automobile market.”

mobidic@donga.com