'Car Guy' Rocha Hustles to Keep GM Korea Relevant

GM Korea CEO Rocha

“I speak their language,” he says, adding employees who feel they are heard and respected can make a much more energized workforce.

Still, despite making such communication inroads with labor representatives, Rocha contends, “one thing that concerns me a lot in Korea is labor cost.”

Concerns over such expenditures have contributed to ongoing speculation by industry observers and media that GM Korea soon may prove no longer viable and the parent company will decide to pull out of the country, shifting operations to regions such as China and India, where labor costs are considerably lower and the opportunity for market expansion is high.

Rocha, however, sees GM Korea’s labor woes as a potential step ahead of the strife developing markets are expected to face over the next several years.

In the same way Japanese automakers learned 20 to 30 years ago how to work with labor groups and American manufacturers learned before that, Rocha suggests, Korea over the past 10 years or so has experienced the birth pains of its own labor-relations efforts.

Similarly, in India and Thailand – where current labor costs are roughly half those in Korea – automakers will have to develop their own relations with labor interests over the next decade, he says.

“You can say, number one, that the technology here is much better developed than in India. We agree on that. The quality, we agree on that. The technical execution, we agree on that.

“But those are factors that that Japanese learned...the Koreans learned it as well, the Chinese are learning, and fast, and the people in India will be learning tomorrow and maybe next decade, the people from Africa will learn,” Rocha notes. “If the Koreans lose their competitiveness...the labor cost in Korea, the whole country,” could skyrocket 50% in the next five years.

“This is what I'm telling the union,” Rocha says, “this is what I'm telling my employees: ‘I’m not here to pay you less. If you want to make a 5% salary increase every year on the base wage, bring the productivity 6% up, so you offset your labor costs through productivity, (then) we are good.”

“But, if you want 5, 5, 5, 5 (percent) and your productivity is 3, 2, 4, 3 (percent), soon you'll be shooting” both your feet, he continues.

It’s imperative for Korea’s automakers to work on improving their labor situation now, to avoid further problems tomorrow, Rocha reiterates.

Not Going Away

For much of the past decade, GM Korea – which has combined GM's global reach with the small-car technological expertise of the former Daewoo – has been considered a successful venture, accounting for more than an estimated 20 % of GM's annual worldwide production of about 9.5 million vehicles.

But GM Korea’s labor cost per vehicle has been estimated at $1,133, according to both company and labor officials, compared with the average $677 per vehicle across GM's global operations.

After GM Korea lost two labor-related suits in 2012, it was ordered by a court to recalculate worker wages with the inclusion of bonuses and to provide the resulting three years of back pay.

The automaker has appealed the ruling to the Supreme Court, but has set aside 814 billion won ($746 million) to settle the unpaid-wages claims, just in case the appeal fails.

GM Korea officials say the contingency reserve caused a loss of 340 billion won ($307 million) in 2012, but the automaker rebounded to post a 1.1 trillion-won ($1 billion) profit last year.

GM spokesman Haeho Park notes in a previous WardsAuto report the automaker has not strayed from its plans to invest 8 trillion won ($7.3 billion) in capital for new product, equipment and research and development over the next five years, a 60% increase over the previous investment targets.

A stellar example of GM Korea’s stepped-up investment is the company’s improved design center, built for an estimated $40 million. One of seven fully integrated design, engineering and manufacturing operations within GM, the Korean facility is the third largest after those in the U.S. and Brazil.

Having contributed to the development of GM’s top-selling models, including the Chevrolet Spark, Aveo and Cruze, the re-worked Korean site houses about 200 employees and has received Leadership in Energy and Environment Design certification from the U.S. Green Building Council, in keeping with GM’s global environmental design practices.

GM Korea expects to continue rolling out new and redesigned vehicles, including a diesel-powered Malibu, and an all-new vehicle lineup and new powertrain are slated for 2015, Park says.

WardsAuto reported earlier this year the 250,000-vehicle-capacity Gunsan plant, which produces Cruze, Orlando and Lacetti models, was operating at 60% capacity. GM Korea has explained the under-utilization as the result of an effort to balance resources throughout the company. Park dismisses rumors Gunsan will be closed soon.

Meanwhile, the two plants in the Bupyeong district of Incheon are running at capacity, rolling out the Malibu, Captiva, Alpheon, Opel Mokka, Traxx and Encore. The plant in Changwon, which produces the Spark and Spark EV, has been running above capacity since restarting production of the popular Damas and Labo mini delivery vehicles.

Rocha is hopeful GM Korea and its competitors will discover the strategies they need to keep their employees motivated and production expenses manageable. Then, he speculates, the story of GM Korea ultimately will continue a successful one.

While Rocha believes the progress of GM Korea was anticipated, because “we ended up investing and every single investment here got approved,” it also exceeded many of GM’s initial market predictions.

“I think,” he says, “GM Korea was in this past decade a positive surprise for the corporation.”