GM, South Korea Set for Standoff as Automaker Threatens Exit

(Bloomberg) -- General Motors Co. and South Korean authorities are set for a standoff after the automaker announced a plan to shut one factory and threatened to leave the country entirely if concessions aren’t made to stem mounting losses.

South Korean officials will hold talks with GM about ways to keep the carmaker’s operations open, the finance ministry said in a statement Tuesday. The state-run Korea Development Bank also will conduct due diligence to assess GM’s Korean business over the last few years, the ministry said.

GM Chief Executive Officer Mary Barra has been ditching poor-performing business units around the globe to play to the company’s strengths. She warned earlier this month that the company’s operations in South Korea were in dire need of a turnaround, as the rise of expensive electrification and self-driving technology encourages companies to trim any units not earning their keep.

“We need to get to a business that is viable, sustainable and profitable and will keep growing,” GM President Dan Ammann said in a phone interview. “Time is short and everyone needs to move with urgency.”

Closing Costs

The U.S. automaker will shutter its assembly plant in Gunsan by the end of May, cutting about 2,000 jobs. As a result of the closing, GM will take special charges of as much as $850 million in the second quarter, according to a statement. The company is in talks with union officials, government and GM Korea shareholders about the cost cuts needed to keep other plants in the country operating.

“The government expresses deep regret over GM’s one-sided decision to suspend and shut down” the plant, the finance ministry said.

GM slipped 0.2 percent to $41.93 as of 9:35 a.m. Tuesday in New York. The shares rose 2.5 percent through Monday’s close after an 18 percent jump last year.

GM Korea posted combined losses of 1.945 trillion won ($1.8 billion) in the three years through 2016, according to regulatory filings. The business reported net income of 55.6 billion won in 2013.

At the end of 2016, GM Korea had 7.53 trillion won of assets, 7.521 trillion won in liabilities, and a debt-to-equity ratio of 867 percent.

The Gunsan plant makes the Chevrolet Cruze compact car and Chevy Orlando sport utility vehicle. It’s been running at just 20 percent of capacity, and about a third of the 34,000 cars built there last year were exported.

‘Unreasonable,’ ‘Absurd’

GM has three other plants in South Korea and employs 15,663 workers in the country, a spokesman said. The company exported Chevrolet cars to Europe before GM pulled the Chevy brand from that market in 2013, putting strain on the Korean business. A total of about 300,000 workers rely on GM when including suppliers, according to the carmaker’s local union.

A spokesman for GM’s Korea union said the company’s decisions were unreasonable and absurd.

“It’s unreasonable that the company tells us it will fire people while we are in negotiations for wages,” the spokesman said. “The loss didn’t come from workers. We can’t admit this and it’s absurd the company is blaming us for the loss after pulling out Chevrolet from Europe.”

In order to stay, GM said it will need to see significant progress by the end of February in its talks with the union, government and Korea Development Bank, which owns 17 percent of the automaker’s business there. China’s SAIC Motor Corp. owns 6 percent, while GM has the remainder.

Too Expensive

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.

“The future of the business is in the hands of the stakeholders,” Ammann said.

GM’s manufacturing costs in Korea have gone up while its local sales plunged 20 percent last year. The company acquired financially troubled Korean carmaker Daewoo in 2002, but consumers there have still gravitated toward cars made by local players Hyundai Motor Co. and Kia Motors Corp.

Last year, GM sold its European Opel and Vauxhall brands to France’s PSA Group for $2.3 billion and also exited India and South Africa. Before that, GM also closed manufacturing operations in Russia and Indonesia and stopped most of its production in Thailand, where it still makes some vehicles.

©2018 Bloomberg L.P.

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