GMDAT Halts Aveo Output Over Tire Price-Increase Demand

GM Daewoo Auto & Technology Co. is forced to halt production of its U.S. best-selling Aveo (Gentra) compact car when two major tire companies refuse deliveries to the auto maker’s Bupyeong factory.

Hankook Tire Co. Ltd. and Kumho Tire Mfg. Co. stopped supplying tires Friday after GMDAT refused to comply with a price-increase request, the auto maker’s spokesman tells Wards.

Tires are delivered on a tight just-in-time basis, and production ended at mid-day with all shifts cancelled indefinitely.

“Anticipating this action by the tire companies, we went to the Seoul Central District Court Thursday and filed an injunction application, asking the court to require both companies to continue supplying tires according to our long-term agreement,” the spokesman says.

The long-term agreement allows for periodic increases that are specified in the contract language, but beyond that it is not negotiable.

“We hope the court will deliver an order to the tire companies very soon,” he says. “They accepted our application very quickly, which shows their understanding of the importance of this situation.

“We have had a long, very friendly relationship with the two suppliers and consider them to be our partners. On this basis, we did grant an unusual price increase in recognition of their increased material costs in March.”

Chevy Aveo GMDAT’s bestseller in U.S.

Three months later, the tire companies are asking for an additional increase. “The March increase was highly unusual, and both sides should continue to respect the content of the long-term agreement.”

GMDAT declines to specify the price increase agreed to in March nor that of the latest demand.

However, informed sources tell Ward’s the price jumped 5.5% in March, and that Hankook and Kumho now are demanding an additional 12% increase, based on rising costs for carbon and rubber.

The GMDAT spokesman declines to say how much Aveo production has been lost or specify daily throughput. The plant normally runs on two 10-hour shifts, six days a week, with a partial shift on Sunday to keep up with demand.

The Aveo is built at Bupyeong for both domestic sales and exports to more than 120 overseas markets, including the U.S. It also is assembled in China, Ukraine, Columbia and Equador.

High fuel prices in the U.S. are driving up demand for small, fuel-efficient cars such as the Aveo, as consumers turn away from traditional large cars and trucks.