The tariff rate for South Korea's automobile exports to the U.S. has been set at 15%, increasing concerns about whether General Motors (GM) will maintain its business sites (GM Korea) in the country. GM manufactures compact SUVs in South Korea for sale in the United States. Until now, GM has targeted the U.S. compact SUV market by leveraging low prices, but with the tariff imposed, the price difference between it and Japanese competitors such as Subaru and Honda has narrowed, making competition more challenging.
Domestic automakers have lost price competitiveness in the U.S. market due to the tariff. Until now, South Korea did not impose tariffs due to the Korea-U.S. Free Trade Agreement (FTA), while Japan was subject to a 2.5% tariff.
GM has utilized the tariff exemption benefits under the Korea-U.S. FTA. The company has been restructuring its global business sites since the mid-2010s, but it only closed the Gunsan plant in Korea, while leaving the Bupyeong and Changwon plants as production bases for compact SUVs like the Trailblazer and Trax crossover.
The Trailblazer and Trax crossover are compact SUVs with good cost-performance that have gained popularity in the U.S. market. Korea's lower labor costs and lack of tariffs allowed GM to reduce prices.
Competing models in the U.S. compact SUV market alongside the Trailblazer and Trax crossover include Subaru's Crosstrek and Honda's HR-V. In the first half of this year, the cumulative sales figures show the Trax crossover led with 119,593 units, followed by the Crosstrek with 90,334 units. The HR-V was third with 79,110 units, and the Trailblazer ranked fourth with 54,516 units.
According to the automotive market information platform Edmunds, the most expensive compact SUV in the U.S. is the HR-V, starting at $27,595. The Crosstrek starts at $26,995. The Trailblazer is priced from $24,395, and the Trax crossover can be purchased starting at $21,895.
If Subaru and Honda freeze their prices and a 15% tariff is imposed on GM vehicles, the starting price of the Trailblazer in the U.S. would rise to $28,054, surpassing the prices of the HR-V and the Crosstrek. The starting price of the Trax crossover would be $25,179, significantly narrowing the gap with Japanese vehicles.
The Crosstrek has been produced at Subaru's Indiana plant in the U.S. since 2023, with some quantity imported from Japan. Since Japanese vehicles are also subject to a 15% tariff, Subaru is expected to expand production at its Indiana facility.
Honda has been producing the HR-V in Mexico, which has a FTA agreement with the U.S. After U.S. President Donald Trump announced plans to impose high tariffs on Mexican products, Honda is pursuing a plan to transfer HR-V production to the U.S.
Compact SUVs are more sensitive to price compared to mid-size and large models. Moreover, consumer preference for the quality of Japanese cars is high in the U.S. If the prices of GM's compact SUVs become similar to or higher than Japanese cars due to the tariffs, competition is expected to become challenging.
From GM's perspective, it faces a dilemma regarding adjustments to production volume in Korea, but the implementation of the Yellow Envelope Law (amendments to Articles 2 and 3 of the Labor Union and Labor Relations Adjustment Act), which is being promoted by the Democratic Party of Korea, makes it even more difficult to proceed with that.
The Yellow Envelope Law includes business decisions affecting working conditions as a subject of union disputes, meaning that if GM attempts to adjust production volumes in Korea, the union can strike. The Yellow Envelope Law expanded the scope of business operators so that subcontractor unions could strike against primary contractors, with GM Korea's partner companies numbered around 3,000.