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GM Korea to cut production; carmakers call for govt action

By Feb 04, 2021 (Gmt+09:00)

GM Korea to cut production; carmakers call for govt action
The South Korean arm of General Motors Co. has become the country’s first automaker forced to cut production due to the global semiconductor chip shortage.

While the sector leader Hyundai Motor Co. and its affiliate Kia Corp. have chip stockpiles for another two months, they are calling on the government to help mitigate the disruption in supply.

GM Korea Co. said on Thursday that from Feb. 8., monthly production at the Bupyeong Plant 2, its main production line, will be halved from 10,000 units to 5,000 units. To do so, the company is considering changing its two-shift system to one shift, or reducing its number of working days. The plant, located west of Seoul, produces the mid-sized sedan Malibu and the compact SUV Trax. 

“Typically, we set production plans on a monthly basis. But for the time being, we cannot help but change it to a weekly basis,” a GM Korea official told The Korea Economic Daily. “We don’t know when the plant will return to normal operation.”

The company will announce details on Feb. 10 about how it will run its plants.

Simultaneously, the US automaker announced the closure of its three plants: in Fairfax, Kansas in the US; Ingersoll, Ontario in Canada; and San Luis Potosi in Mexico, from next week.

“In the long term, other GM Korea plants, including Bupyeong Plant 1 and one in Changwon, are highly likely to cut production,” said an automotive industry source. “Given that GM's headquarters is in control of parts supply, some plants (in Korea) may have to be shut down.”

GM Korea began slashing production rates late last month due to the component supply disruption.

Other Korean carmakers are unlikely to follow suit anytime soon. Hyundai and Kia have secured two to three months’ worth of chip stockpiles, and on Wednesday, both carmakers posted strong January sales in the US
The Korea Automotive Manufacturers Association recently held an emergency meeting to discuss the parts shortage. The trade group will ask the government to come up with measures, including negotiating with Taiwan Semiconductor Manufacturing Co. (TSMC) and domestic auto chip makers to meet their supply needs.

The chip supply disruption has put other global carmakers under heavy pressure. Volkswagen, Ford, Chrysler, Fiat, Honda and Toyota have cut vehicle production or shut down some of their plants. Audi sent more than 10,000 employees on vacation due to the chip shortage.

IHS Markit said in a recent research note that the chip supply constraints will likely persist until the third quarter of this year. The chip shortage could push this year’s global auto production 2-4% lower than earlier projections.


The supply crunch is expected to lead to price hikes. Semiconductor manufacturers are understood to have entered negotiations with carmakers over a price increase. A 10% rise in chip prices tends to push up car production costs by 0.2 percentage point, cutting the carmaker’s operating profit by 1%.  

Chips are used in a broader range of car applications. A vehicle has around 200 to 400 chips installed, including electronic control units (ECUs) that control engines and transmission, temperature and humidity sensors and cameras, as well as infotainment. They are also used in driver assistance systems, navigation control, Wi-Fi, Bluetooth, video displays and computerized engines.

The number of chips installed in a vehicle has been rising. In particular, an autonomous car is expected to use more than 2,000 chips. IHS Markit forecast the automotive chip market to expand to $65.5 billion by 2024 from $41.8 billion in 2019.

The chip supply shortage was worsened by the pandemic situation. Global carmakers had postponed their chip orders to brace for a sales decline. Chip foundry companies have begun to make up the lost production with chips for electronics gadgets, in growing demand amid the contactless trend.

NXP Semiconductors, Renesas Electronics and Infineon Technologies are leading the automotive chip market, while Samsung Electronics Co. is a latecomer.

Meanwhile, Taiwan's foundry firms led by TSMC and United Microelectronics Corporation (UMC) have expressed their intention to prioritize chip supplies for automakers at the request of governments from the US, Germany and Japan.

Write to Byung-Uk Do at

Yeonhee Kim edited this article.
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