SEOUL, Feb. 13 (Korea Bizwire) — General Motors Co. will shut down one of its four car assembly plants in South Korea by the end of May due to lower demand for its vehicles, the local unit of the U.S. carmaker said Tuesday.
The plant to be closed is in Gunsan, 270 kilometers south of Seoul. It has been underutilized, running at 20 percent of its capacity for the past three years. GM has five production facilities in Korea — four car assembly plants and one transmission factory.
The move comes as part of the Detroit-based carmaker’s broad restructuring program across the world. It has been aggressively scaling back or shutting down underperforming businesses and it “is now focused on finding a solution for its South Korean operations,” GM Korea Co. said in a statement.
“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,” GM Executive Vice President Barry Engle said in the statement.
GM Korea has recently called on its key stakeholders, including its labor union and the South Korean government, to help it push forward a plan to turn its loss-making business around. Such a move requires the full support from all parties, it said.
The plan includes significant product-related investments in South Korea that will help preserve thousands of jobs, it said.
“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,” GM Korea President and Chief Executive Kaher Kazem said in the statement.
The company is committed to supporting all of its affected employees through this transition, Kazem added.
Last week, GM CEO Mary Barra said the Korean unit must take steps to be “viable.” Referring to GM Korea, she said, “We’re going to have to take actions going forward to have a viable business.”
Barra’s remarks reignited concerns about GM’s possible withdrawal from Korea as the Detroit-based automaker has reorganized its global businesses by shutting down plants in emerging markets such as Russia and India over the past three years, also selling its German unit Opel and U.K. brand Vauxhall to France’s PSA Group last year.
To maintain a sustainable presence for its Korean unit, GM plans to spend up to $850 million this year, including approximately $475 million in non-cash impairments and $375 million in employee-related cash expenses, the statement said.
All the expenses will be reflected in GM’s first-half earnings results as one-off costs, it said.
For the whole of 2017, GM Korea saw its combined sales slump 12 percent on-year to 524,547 vehicles from 597,165.
GM holds a 77 percent stake in GM Korea and the state-run Korea Development Bank (KDB) owns a 17 percent stake in the maker of the Chevrolet Spark minicar, the Cruze compact and the Captiva SUV.
In response to the planned shutdown of the Gunsan plant, the Seoul government and GM Korea’s union released statements.
The government expressed deep concerns over GM’s decision to close the Gunsan plant, saying the KDB will meet with GM to assess the carmaker’s operations.
“Given its impact on the local economy, the government will continue talks with GM over the normalization of its Korean unit,” the finance ministry said in a statement.
The union vowed to carry out a concerted fight against the company’s “unilateral” decision. The workers criticized GM and claimed the U.S. carmaker exploited its Korean unit by providing loans at high rates and buying Chevrolet vehicles produced here at low prices that effectively hurt the local company. The union added that GM ignored efforts to put the South Korean business back on track.