GM continues to cut fat with South Korean plant closure
General Motors Co.’s decision to shut down an under-performing plant in Gunsan, South Korea, is more proof that the company is not skittish about shuttering parts of the business that aren’t making money.
“There appears to be no part of the business that is safe from the microscope,” said Dave Sullivan, an automotive analyst with AutoPacific, an automotive consulting firm. “If you’re working at GM and your part of the business isn’t contributing to the company, you can be sure someone is noticing.”
GM ceded defeat in the European market last year, selling its Opel-Vauxhall business to PSA Groupe in France. The Detroit automaker has also pulled back in Russia and India in the past three years.
GM isn’t leaving South Korea altogether, but shutting down a single facility in Gunsan which is says has been running at a mere 20 percent of capacity for the past three years. The plant builds the Chevrolet Cruze compact car and the Chevrolet Orlando compact SUV. Three other Korean plants will continue operations.
The announcement comes at a time when all eyes are already on the Winter Olympic Games in PyeongChang.
It’s a blow for the South Korean President, Moon Jae-in, who has prioritized jobs and wages. But it’s also a bold move for GM, given the Asian peninsula’s strong unions.
“Korea is a difficult place to reduce capacity. Labor relations are always very strained,” Sullivan said. “It’s certainly a bold move for GM that sends a clear message that things have to change if plants are going to survive there.”
GM says the plant will close by May 2018, but is working with “key stakeholders” — including the labor union and the South Korean government — to develop a plan to turn the South Korean business around. But that plan, which would include product-related investments in the Asian country and the preservation of “thousands of jobs” requires “the full support of all parties,” GM said in a statement.
“The performance of our operations in South Korea needs to be urgently addressed,” Barry Engle, president of GM International, sadi in a statement. “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.”
The decision to close a plant always comes with a cost. This time, GM expects to take charges of up to $850 million, which will be reflected by the end of the second quarter.
“GM is not waiting for another global downturn to make these decisions,” Sullivan said. “They’re doing it now when they can afford it.”
CEO Mary Barra first hinted at changes in South Korea on a conference call with analysts last week, when she said GM would need to “take actions going forward to have a viable business” in South Korea. The conference call came after GM reported a strong financial performance in 2017, though took some one-time charges on the sale of Opel-Vauxhall that dinged net profits.
“This represents more of what we’ve come to expect from today’s GM. The automaker is much more focused on profitability and financial sustainability, leading to the closure of multiple operations across the globe,” said Karl Brauer, automotive analyst with Kelley Blue Book.
“It could be seen as a contraction, but I think it’s more accurate to see it as reflecting GM’s lean, efficient global approach — fewer scattered, financially struggling operations, more centralized, profitable operations. It’s the not first plant closure by today’s GM leadership, and it’s likely not the last.”
Bloomberg and the Associated Press contributed.