For the first time in 23 years, a finished car plant has started operations in South Korea. The operator is Gwangju Global Motors (GGM). This unfamiliar company was established under the leadership of the city of Gwangju in southwestern South Korea, with Hyundai Motor taking a stake, to specialize in contract manufacturing of small cars. The city of Gwangju, which aims to attract industry and create jobs, and Hyundai Motor, which wanted a plant where production can be outsourced at a low cost, coincided in their intentions.
The site area of 455,000 square meters is lined with three buildings: a pressed car body factory, a painting factory, and an assembly factory. Inside the assembly plant, which measures 340 meters by 140 meters, eight colorful car bodies flow smoothly down a three-dimensional production line.
This compact car is Hyundai Motor’s first model exclusively for online sales, the Casper. It is a mini-SUV, and the cheapest type costs 13.85 million won (about 1.34 million yen). The affordable price range has made it popular mainly among women, and more than 10,000 units have been sold before shipment.
The company plans to produce 12,000 units by the end of this year and 70,000 units in 2022. Currently, the company produces 22 units of a single model per hour.
In the future, the company will also take on the production of small EVs and will engage in mixed production where multiple models are produced on a single production line.
There is still room for expansion of the second and third production buildings on the site, and GGM plans to increase production capacity to more than 200,000 units per year as orders increase. GGM, which is not well known even to Koreans, is a company specializing in contract manufacturing that was founded by the city of Gwangju. The city of Gwangju is the largest shareholder with a 21% stake, followed by Hyundai Motor with 19%, Bank of Gwangju with 11%, and the government-affiliated Industrial Bank of Korea with 11%. Other local companies have also invested in the company, which was established with a capital of 230 billion won.
Source: The Nikkei
PSR Analysis: This is a unique approach to the establishment of a plant in which the local government, banks, and local companies are each a shareholder, rather than the manufacturer making the decision almost solely on its own.
This is due to the labor-management conflicts facing the Korean auto industry. Hyundai has been the victim of numerous wage hike strikes led by union hardliners, and its average salary has reached almost the same level as Toyota.
In contrast, the average salary at GGM is less than half that of Hyundai. Housing and benefits are supported by the city of Gwangju and the government, providing a safe and secure work environment in a land far from Seoul.
For Hyundai Motor, which until now had no choice but to charge high labor costs to its sales prices, having a plant in the country that can produce at low labor costs is significant. Since the models currently being produced are sold exclusively online, the labor cost on the sales side can also be reduced, making it possible to sell at a reasonable price. PSR
Akihiro Komuro is a Research Analyst, Far East and Southeast Asia, for Power System
