General Motors Company’s (GM) decision to pull out its Chevrolet brand from Europe will adversely affect its employees in South Korea. As per Reuters, the automaker is planning to offer a voluntary retirement scheme to 6,000 salaried workers in the country from Mar 2014, to reduce the headcount.
The decision is the direct result of General Motors’ strategy related to Europe, as most of the Chevrolet cars sold in Western and Eastern Europe are manufactured in South Korea. Thus, the move is expected to lower the production in South Korea by almost 20% by 2015.
This necessitated a staff reduction for improving operation efficiency. While the number of job cuts planned has not been disclosed, General Motors revealed that it will not cut production jobs. The voluntary retirement scheme is open to almost 2,200 research and design personnel, among others. This is the fourth round of staff reduction by General Motors since 2009.
The research and development center of GM Korea is currently working on the development of the next-generation Spark mini-car, which is scheduled to launch in 2015. Once the development of the car is competed in Mar 2014, the center will not have any other projects to work on.
General Motors presently manufactures about one-fifth of its cars in South Korea, mostly for export. However, rising labor costs, trouble with labor unions and strengthening of the South Korean Won is affecting the company’s efficiency in the region. Labor strikes in the nation in July resulted in production losses of over $90 million, forcing General Motors to reach a wage settlement, including yearly bonuses of 10 million Won ($9,000 million) per member.
Consequently, earlier this year, there were media reports suggesting that the automaker will gradually move out of South Korea. While the accuracy of these reports remains to be seen, the voluntary retirement scheme will come as a blow to General Motors’ South Korean workforce.
General Motors currently carries a Zacks Rank #3 (Hold). Better-ranked major automobile stocks worth considering are Tata Motors Limited (TTM), Ford Motor Co. (F) and Honda Motor Co., Ltd. (HMC). All these stocks hold a Zacks Rank #2 (Buy).
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