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(News Focus) GM's streamlining in S. Korea could hurt local economy

All Headlines 19:25 February 13, 2018

By Choi Kyong-ae

SEOUL, Feb. 13 (Yonhap) -- General Motors Co.'s decision to close one of its four vehicle assembly plants in South Korea is fueling worries that additional shutdowns of remaining operations could follow, and seriously impact the local economy, industry insiders and analysts said Tuesday.

On Tuesday, GM announced its plan to shut down its 260,000-unit-a-year plant in Gunsan, about 270 kilometers south of Seoul, by the end of May, saying that the plant has been seriously underutilized. The plant had been running at 20 percent of its capacity for the past three years.

GM Korea said the move is part of the parent company's broad restructuring of unprofitable businesses globally in recent years. But it also appears to be part of GM's pressure on the Korean government to extend a helping hand to the loss-making Korean unit.

This photo, taken on Feb. 13, 2018, shows the gate of GM Korea's Gunsan plant, about 270 kilometers south of Seoul. The plant is to be shut down by May as part of GM's broader restructuring plan. (Yonhap)

Many market watchers here have said recent remarks by GM executives can be interpreted as the carmaker putting pressure on Seoul to make a joint effort to help it turn the Korean business around.

"It is probably fair to say that the plant closure announcement is a move to bring about a response from local authorities," an industry analyst here, who did not wish to be named, said.

The state-run Korea Development Bank (KDB) owns a 17 percent stake in GM Korea, with GM and SAIC Motor Corp controlling 77 percent and 6.0 percent, respectively.

On the same day when the announcement was made, GM President Dan Ammann told Reuters that the Detroit-based carmaker will decide the future of the remaining plants in Korea within weeks, based on talks with the Seoul government and GM Korea's labor union.

His remark that, "Time is short and everyone must move with urgency," is adding to worries that GM may even be considering exiting the country altogether.

Such a development could result in massive layoffs not only at the four plants which employ 13,000 workers, about 80 percent of the total workforce employed by GM Korea which has 16,000 workers in its payroll.

The four plants combined have the capacity to churn out 910,000 vehicles annually.

Related to the plant shutdown move, GM Chief Executive Mary Barra had said last week that the Korean unit must take actions going forward to be "viable." Her remarks were timed with local reports that GM asked policy lender KDB to inject fresh funds into GM Korea.

In a statement released earlier in the day, GM confirmed it had proposed to its key stakeholders, including the KDB and the labor union, a self-help plan that requires full support from all parties. The plan includes a significant product-related investment, although the company didn't provide details on future product plans.

"The closure of the Gunsan plant won't have an impact on the local automobile industry due to its low utilization rate. But if GM shrinks its Korean operations further due to high labor costs and slow sales, it will be a major blow for the industry and the economy as a whole," Suh Sung-moon, an auto analyst at Korea Investment & Securities Co., said.

He said GM is in talks with the Korean government about ways to put its Korean operations back on track.

However, the KDB is not likely to accept GM's proposal without conditions of its own, as it will be asked to inject taxpayers' money. The policy lender could make any new funding for GM contingent upon the automaker coming up with a firm plan to invest in new models for the Korean plants, Suh said.

After the finance ministry expressed deep regret over GM's unilateral decision, Trade Minister Paik Un-gyu said Korea's support depends on how GM invests in its Korean operations.

Suh's view is echoed by Kim Tae-nyen, vice president at the Korea Automobile Manufacturers Association (KAMA). He said reduced output at GM Korea plants would drive down the country's exports and weigh on its economic growth, which is forecast to be around 3 percent this year.

For its long-term presence in Korea, GM claimed it will spend up to $850 million this year, including approximately $475 million in non-cash impairments and $375 million in employee-related cash expenses.

For the whole of 2017, GM Korea saw its combined sales slump 12 percent on-year to 524,547 vehicles from 597,165. Five carmakers operating in Korea, including Hyundai Motor Co., Kia Motors Corp., Renault Samsung Motors Corp. and SsangYong Motor Co., sold a total of 8.19 million cars last year, down 6.9 percent from a year earlier.


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