GM Daewoo restarts production after tire price dispute

SEOUL, South Korea — Production at GM Daewoo Auto & Technology’s main Bupyeong plant in South Korea resumed July 22 after a price dispute with tire suppliers halted lines there.

Korean tire makers Kumho Tire Co. Inc. and Hankook Tire Co. Ltd. stopped delivering tires to GM Daewoo on July 18 because the auto maker would not agree to higher tire prices. The suppliers said rising material costs necessitate the increase.

Later that day, a Seoul court agreed with an injunction filed by GM Daewoo to lift the suspension of tire supplies. The tire makers complied four days later.

GM Daewoo estimated it lost production of 3,000 Aveo compact cars and 1,200 Epica sedans, both of which are exported as Chevrolets to North America and Europe, with the Epica sold in Canada.

The South Korean auto maker gets more than 85 percent of its tires from the two tire companies.

In March, GM Daewoo agreed to a 5.5-percent price increase on tires from the two tire makers, according to Kumho. But a follow-up request July 1 for an additional 12 percent was too much for the auto maker. In a statement, GM Daewoo said the move violated local trade laws, as well as its long-term contracts that include fixed prices.

GM Daewoo made an “exceptional concession” in the case of the first price increase and did so out of consideration of rising material prices, according to a statement.

A Kumho spokesperson said the tire maker’s contract with GM Daewoo does not prevent Kumho from raising prices. The tire company will look into further legal options and has no choice but to seek an increase, given a 50-percent boost in raw material prices, he said.

“We do not want to be portrayed as taking a hard-line stance,” the spokesperson said. “We just want to say we have no choice but to raise supply prices. We have been pushed to the edge.”

Hankook said that since March, its costs have risen 40 percent—most of that coming from oil and rubber price increases.

According to a Hankook spokesperson, the company doesn’t “have long-term contracts, like GM Daewoo has with us, with our global suppliers.”

He said Hankook will review its legal options, noting the company wants GM Daewoo’s business, but also wants the company to be more willing to take care of its suppliers.

“GM Daewoo refused even to talk to us about this crisis,” he claimed.

Other Korean auto makers are “very seriously” considering Hankook’s request for a 12-percent price increase, the spokesperson added.

He also said Kumho and Hankook didn’t collude to halt supplies at the same time, but the timing isn’t surprising given that both companies know what the other is up to, making it easy to make a similar move at the same time.

“It’s a small country,” he said.

July 25, 2008 | Tire Business