Renault vows action if Korean unit fails to improve productivity, cut costs

French auto giant Groupe Renault has warned of stern action against its struggling South Korean unit, urging it to improve productivity and cut costs to stay afloat.

In a video message delivered to Korean employees, Jose Vicente de Los Mozos, executive vice president in charge of manufacturing and supply chain at the French carmaker, said on Feb. 9 that its sole Korean plant in Busan, southeast of Seoul, lags far behind other Renault factories around the globe in terms of productivity.

If the Busan plant does not keep its earlier promise to improve productivity, the group will take “a new path,” the executive was quoted as saying.

The Korean unit, Renault Samsung Motors Corp., didn’t elaborate, but industry officials said the French carmaker could drastically cut the plant’s production volume for exports or, in a worst-case scenario, may pull out of Korea.

The executive said in the message that the group in September last year allowed the Korean unit to manufacture most of the XM3 compact SUV at the Busan plant for global sales in return for its promise to significantly improve productivity.

MANUFACTURING AT BUSAN TWICE AS COSTLY

But the XM3’s manufacturing cost at the Korean plant is twice that of the Captur SUV at Renault’s Spain plant, and if transportation fees are added to send finished cars to Europe, the total costs will rise further, making the Korean factory less suitable for production, he said.

Exports account for about 30-40% of the Busan plant’s total output and a significant drop in export volumes could lead to deep job cuts.

The XM3 and the Captur share the same platform, and the XM3 is sold as the New Arkana in Europe.

The French carmaker recently cited Korea alongside Latin America and India as places where an improvement in productivity and profitability is needed.

According to Renault, the Busan plant’s cost competitiveness ranked 17th among the group’s 19 production bases globally in 2020. The plant’s overall production competitiveness ranking dropped to 10th last year from the top spot in 2016.

Renault’s Korean unit has been suffering from falling sales particularly after its contract production of Nissan’s Rogue SUV at its Busan plant ended in March last year.

The Korean unit’s total auto sales in 2020 dropped 34.5% to a 16-year low of 116,166 units, forcing the company to report an operating loss of 70 billion won ($63 million), its first shortfall in eight years.

EMERGENCY RESTRUCTURING

Last month, Renault Samsung announced “emergency” restructuring, including pay and job cuts and a voluntary retirement program.

The Korean unit’s unionized workers last week voted for a strike plan in response to the company’s restructuring measures. The workers haven’t carried out the planned strike yet.

The group executive expressed concerns over possible disruption to production if workers stage a strike as planned.

He emphasized the importance of delivering the XM3 SUVs produced at the Korean plant to Europe “without delay.”

“One of the Renault group’s top priorities this year is to increase its sales in the European market. If the XM3 production is delayed because of a strike at the Busan plant, the group may assign the production to somewhere else,” said an official at the Korean unit.

Write to Byung-Uk Do at dodo@hankyung.com
In-Soo Nam edited this article.