GM has capacity issue to solve in Korea
General Motors Co.’s plants in South Korea are only running at about 60 percent of available capacity, and the automaker is considering whether to cut employees, shrink its operations there or build more vehicles in the region that it can ship to markets such as North America.
The situation in South Korea is just one challenge that Stefan Jacoby, president of GM’s International Operations since 2013, has in the region that includes nearly 100 markets in Africa, Asia and the Middle East and 34 vehicle manufacturing plants in nine countries.
When China is excluded, the automaker’s International Operations region loses money. Jacoby, a former executive with Volkswagen AG and Volvo Car Corp., is charged with turning it around and generating a profit that is sustainable.
GM, he told reporters recently in Detroit, previously lacked an overall strategy for the region and wanted to have a presence everywhere. But it has since set priorities, focusing on where it can be profitable and sees future growth. The company has announced restructuring in Australia, Thailand and Indonesia, and growth plans for India.
GM has about 10 percent market share in South Korea. The automaker used to export vehicles from Korea to markets such as Europe. But in December 2013, GM announced it would stop selling most Chevrolets in Europe. Earlier this year, GM said it would largely pull out of Russia, stopping production and selling Opel vehicles and most Chevys.
That has left a hole. Jacoby said in the past six to seven years, Korea has gone from a low-cost manufacturing center to nearly “high cost,” comparable with North America. He said GM can no longer use Korea as a “low-cost hub for emerging markets. It’s too expensive.”
“We have not yet found the golden key on that in respect of how we solve our capacity problem in Korea,” Jacoby said, adding the overall Korean business is not profitable.
The automaker employs about 17,000 hourly and salaried workers in Korea and has four plants there. Jacoby said closing a plant or reducing hourly workers would be difficult given the unions and labor laws in Korea.
Through the first half of 2015, GM International Operations — which includes the profitable Chinese market — posted a $720 million adjusted pre-tax profit, up from $567 million in the same period a year earlier.
In January, GM Chief Financial Officer Chuck Stevens predicted overall improved pretax earnings in 2015 for its international operations, and consolidated operations that exclude China. Stevens said GM expects the region without China to post a loss again this year. The carmaker is set to release third-quarter earnings Oct. 21.
While the international region has its challenges, there are bright spots for GM including the Middle East, where highly profitable large SUVs are big sellers. Jacoby says the Middle East is the “biggest growth market outside the famous BRIC (Brazil, Russia, India and China) market,” predicted to nearly double in the next five to eight years to 2.5 million vehicle sales a year.
GM is betting on growth in India, where it now loses money; it plans to invest $1 billion and wants to double its less than 3 percent market share by 2020. Jacoby said a “product offensive” starts at the end of 2016. Analysts say the Indian market could double in size to 5 million sales a year by the end of the decade.