GM continues to cut fat with South Korean plant closure

GM continues to cut fat with South Korean plant closure

GM's Korea operations have been struggling with rising labour costs and slumping domestic sales, fuelling concerns over a potential pullout.

During the meeting, Trump again stressed the trade imbalance with Korea, referring to the free trade agreement. GM stock has lost just under 1% so far this month as the S&P 500 Index dropped nearly 6%.

South Korean government officials expressed "deep regret" at the news.

Union members on Wednesday agreed to demand the cancellation of the closure and operations to be resumed, calling for the chief of GM Korea to resign.

In its emailed announcement, Barry Engle, president of GM International, added that the carmaker was going to make "important decisions on next steps" by the end of February, urging key stakeholders, including the government and the labor union, to make progress in the ongoing discussions.

"Time is short and everyone must move with urgency", GM President Dan Ammann told Reuters.

"We stand ready to engage", he said.

GM's move is the latest in a series of steps to put profitability and innovation ahead of sales and volume.


It said it wanted to conduct an audit of the automaker's local arm, GM Korea, as it weighed options to help with the restructuring plan.

The decision to close a plant always comes with a cost. Since 2015 GM has exited unprofitable markets including Europe, Australia, South Africa and Russian Federation. "We recognize the contribution and support of our employees, the wider Gunsan and Jeonbuk communities and government leaders, particularly through the most recent hard period", says Kaher Kazem, president and CEO of GM Korea.

The decision to close the Gunsan plant, located about 120 miles from the South Korean capital of Seoul, will result in an $850 million charge, GM said, including $375 million in termination benefits for its 2,000 employees.

GM partakes a 77 percent stake in GM Korea and the state-run Korea Development Bank (KDB) holds a 17 percent stake in the maker of the Chevrolet Spark minicar, the Cruze compact, and the Captiva SUV. Declining sales of small cars in the USA have also hurt demand for Korean-made Chevrolets.

With the closure is expected to cut 2,000 jobs at the factory and affect another 10,000 workers at subcontractors, Seoul said it will decide on whether to provide financial aid to keep the assembly plant open after reviewing the company's new investment plans for local operations.

At the end of 2016, GM Korea had 7.53 trillion won of assets, 7.521 trillion won in liabilities, and a debt-to-equity ratio of 867 percent.

After CEO Mary Barra highlighted problems with GM Korea on the carmaker's fourth-quarter earnings call, the company announced on Monday that it would shutter its plant in Gunsan by May, citing capacity utilization of just 20% for the past three years. China's SAIC Motor Corp. owns 6 percent, while GM has the remainder.

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