GM to shut South Korea plant in restructuring drive

General Motors is to close one of its four plants in South Korea as part of broader steps by the US carmaker to downsize unprofitable overseas operations and focus on the US and China.

GM Korea said on Tuesday it would shut its factory in the coastal city of Gunsan, which employs some 2,000 workers, by the end of May. The closure of the lossmaking plant, which is running at about 20 per cent of its capacity, will lead to an $850m charge, the company added.

“This is a necessary but difficult first step in our efforts to restructure our operations in South Korea,” said Kaher Kazem, president of GM Korea.

The move has fuelled fears of a potential full withdrawal by the US carmaker from South Korea, where it is estimated to have suffered a total of roughly Won2.6tn in net losses over the past four years as labour costs have risen and domestic sales contracted.

The Gunsan plant accounts for 7 per cent of the 520,000 vehicles GM Korea produced last year at the facility and its three other factories in the country. 

GM Korea said it was committed to continuing operations in South Korea. It said it was in talks with its labour union and the government about measures to try to turn round its troubled operations, and would be making decisions within weeks.

GM will likely close its other plants in Korea as it has no powerful brand, few new models and sales networks to turn things around

“As we are at a critical juncture of needing to make production allocation decisions, the ongoing discussions must demonstrate significant progress by the end of February, when GM will make important decisions on next steps,” said Barry Engle, GM executive vice-president.  

Earlier this year, Mr Engle met government officials and executives at Korea Development Bank, a key shareholder, to seek support. State-run policy bank KDB has a 17 per cent stake in GM Korea while the US automaker owns 77 per cent and GM’s main Chinese partner SAIC Motor controls 6 per cent.

GM reported a better than expected profit for the fourth quarter, driven primarily by North America.

The South Korean operations, which GM bought in 2002 from bankrupt Daewoo Motor, were once a major production centre for the carmaker’s compact vehicles with a quarter of its Chevrolet cars made in the country and about 85 per cent of the cars exported abroad.

But sales have fallen and losses have ballooned, while its South Korean market share is less than 10 per cent, versus the combined 80 per cent of Hyundai Motor and affiliate Kia Motors, and has been steadily eroding. Exports, meanwhile, were hit by GM’s decision to shrink or shut operations in India, Russia, western Europe and Southeast Asia.

The potential that GM could exit the country, leading to huge job losses, is a headache for Seoul ahead of a local election later this year. Kim Dong-yeon, finance minister, has said the government was considering options for GM Korea, which supports about 200,000 direct and indirect Korean jobs including its 16,000 factory workers. Mr Kim did not give details and GM declined to comment.

Analysts said they expected GM eventually to pull out of the country. “It will likely close its other plants in Korea as it has no powerful brand, few new models and sales networks to turn things around, even if Seoul decides to provide some financial support,” said Lee Hang-koo, researcher at the Korea Institute for Industrial Economics & Trade.