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GM Plans Pull Out from South Korea

General Motors (NYSE: GM) has gradually started cutting its production in South Korea due to rising labor costs and militant unionism. After GM’s 2002 purchase of failed local car maker Daewoo Motors,South Korea has become one of the GM’s main production hubs, accounting for more than 20 percent of GM's annual global production of some 9.5 million cars.

For much of the past decade, GM Korea has been a successful venture. Daewoo's technology mainly helps GM make a relatively quick comeback from its bankruptcy in 2009, allowing the company to make inroads in China and other high-growth emerging markets.

Labor costs had risen sharply over the past decade, making the country turn into a high-cost base. At GM Korea, labor cost per vehicle is expected to be at $1,133 this year, compared to an average $677 per vehicle across GM's international operations. One of the main reasons making the problem even worse is due to the South Korean currency's relative strength over the past year.

Also, last year, members of the union stormed GM Korea chief financial officer Stephen Small's office with steel pipes in hand demanding bigger meal subsidies. The strike resulted in a production loss of 48,000 vehicles or $92 million. GM is especially concerned about union legal action seeking to redefine the meaning of regular wage in Korea.

Regarding the Q2 performance, GM’s revenue increased 3.9% to $39.1 billion while net income was $1.2 billion, down from $1.5 billion a year earlier. During the first half of 2013, its global sales increased 4%, driven by the solid demand in the U.S. and Canada.