GM to close South Korean plant, possibly make deeper cuts in Asia

GM to close South Korean plant, possibly make deeper cuts in Asia

Global collapse of small car business, rising labor costs, negotiations with unions all to blame.

February 14, 2018
By Robert Schoenberger
Cars/Light trucks Economy

Cleveland, Ohio – General Motors is shutting down one of its four plants in South Korea and may shutter others as it seeks to boost profitability, match its resources with customer demand, and for bargaining clout with labor unions in the country.

An export hub for sedans, and a design/research center for small car technology, GM’s South Korean operations have been hurt foremost by the global shift toward larger vehicles such as SUVs and crossovers. In addition, the Korean operations have had rising costs in recent years, and GM has shifted much of its attention in Asia to China, where labor costs are lower and the economy is growing more quickly.

The Gunsan plant, set to close by the end of May 2018, makes the Chevrolet Cruze for Asia and other vehicles, and the plant has been running at about 20% capacity for about three years.The automaker will address the futures of its remaining operations in the country by the end of the month.

"This is a necessary but difficult first step in our efforts to restructure our operations in South Korea. We recognize the contribution and support of our employees, the wider Gunsan and Jeonbuk communities and government leaders, particularly through the most recent difficult period," says Kaher Kazem, president and CEO of GM Korea. "We are committed to supporting all of our affected employees through this transition."

In 2008, before the global recession, small cars were in favor due to $4 per gallon gasoline, and GM touted its Korean operations as a competitive strength, especially for the launch of the Cruze. That small car was designed in Korea and engineered in Germany with management and input from Michigan.

In the decade since then, the outlook for such small cars has changed drastically with major automakers (FCA’s Dodge Dart) exiting the market completely. GM sold its Opel German operations to Peugeot Citroen last year, eliminating another leg of that partnership.

Between the loss of Opel and the possible shrinking of Korean operations, GM is abandoning much of its small-car expertise, calling into question its long-term strategy. The company could be planning to beef up its car design studios in Michigan to pick up the slack, or it could be downplaying sedans globally, focusing its attention on more profitable trucks and SUVs.

GM has proposed terms to its Korean labor union, the South Korean government, and key GM Korea shareholders, requesting help keeping operations going in that country. The proposal includes significant product-related investments in South Korea and would preserve thousands of jobs.

"The performance of our operations in South Korea needs to be urgently addressed by GM Korea and its key stakeholders. As we are at a critical juncture of needing to make product allocation decisions, the ongoing discussions must demonstrate significant progress by the end of February, when GM will make important decisions on next steps," says Barry Engle, GM executive vice president and president of GM International.

GM expects to take up to $850 million in financial charges, including approximately $475 million of non-cash asset impairments and up to $375 million of primarily employee-related cash expenses.

About the author: Robert Schoenberger is the editor of Today's Motor Vehicles and a contributor to Today's Medical Developments and Aerospace Manufacturing and Design. He has written about the automotive industry for more than 17 years at The Plain Dealer in Cleveland, Ohio; The Courier-Journal in Louisville, Kentucky; and The Clarion-Ledger in Jackson, Mississippi.