GM Plant Closure to Undercut South Korean Automobile Industry's Competitiveness

GM Korea

During the meeting, Trump again stressed the trade imbalance with Korea, referring to the free trade agreement.

Opposition lawmakers criticised Moon's administration on Tuesday for the potential job losses from GM's strategy for the country.

GM is in talks with South Korean government officials about ways to make GM's Korean operations profitable. The plant closure is just the first step of several courses of action GM is exploring in an attempt to turn a profit in its Korean operations. Cumulative losses over the last four years stand at W3 trillion (US$1=W1,086).

Ammann declined to specify what GM has asked for in negotiations, but said that as costs there have risen, it's made exports too expensive for many markets.

GM's move is the latest in a series of steps to put profitability and innovation ahead of sales and volume.

In a research note last week, Barclays analyst Brian Johnson said restructuring Korea might not have a "significant impact" on GM's bottom line but "serves as a reminder of how nimble management has been, playing only in areas where it can win", according to the Wall Street Journal.

GM will also take a non-cash one-time charge of about $475 million in "asset impairments", essentially a writedown of the value of the facility. It has shut down its manufacturing operations in Australia, abandoned its retail network in India, walked out of the Russian and South African markets, and sold off its European Opel/Vauxhall subsidiary to France's PSA. GM would record this by the end of the second quarter of 2018 and will be excluded from the company's EBIT-adjusted and EPS-diluted-adjusted results.

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Kaher Kazem, president and CEO of GM Korea, explains, "This is a necessary but hard first step in our efforts to restructure our operations in South Korea".

Details of discussions with the Korean government have not been disclosed, but Trade Minister Paik Ungyu told reporters that, "Any support to GM Korea depends on the content of its new investment".

In 2016, GM's operations across Asian countries had suffered huge setbacks except in China.

GM Korea recorded some $1.8 billion in net losses between 2014 and 2016, and is expected to have seen an estimated $556 million in losses past year.

According to media in South Korea, GM wants to get help from the authorities in the form of tax incentives or the Korean Development Bank's involvement in the planned capital injection to support the company's local division.

The Gunsan auto assembly plant has maintained a factory utilization rate of about 20 percent in recent three years, the GM Korea said in a statement cited by local media reports. A decision regarding the future of GM Korea is expected within the week. The Detroit automaker owns 77 percent of the operations while GM's main Chinese partner, SAIC Motor Corp Ltd, controls 6.0 percent.

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