GM facing showdown with South Korea over exit plans

GM facing showdown with South Korea over exit plans

by Byron Hurd

GM's plan to restructure its Korean operations may prove costly.

The future of General Motors Korea is in doubt after GM announced Monday that it plans to shutter at least one of its operations in South Korea after years of under-utilization.

GM referred to the closing as the "first step" in what it deems a "necessary" restructuring of its operations in the country, indicating it may be a prelude to a complete exit if the Korean government will not sweeten the pot as an incentive for GM to keep its facilities running.

The Gunsan plant will close at the end of May after what the company claims is three years of running at only 20% of its designed capacity. The move is part of a broader effort by GM to tighten up under-performing operations worldwide.

Closing Gunsan will be costly. GM says it will incur $850 million in charges between writing off non-cash assets and paying out some $375 million in "employee-related cash expenses."

Gunsan employs roughly 2,000 people, Bloomberg reports. In total, GM Korea employs more than 15,000. The total workforce employed by GM Korea's suppliers and other support companies is estimated at roughly 300,000 per the local union, which called the Gunsan decision "unreasonable and absurd."

GM Korea has posted losses topping $1.5 billion over the past three reporting years, last making a profit in 2013--the same year GM ceased exporting Chevrolet models from Korea to Europe. Manufacturing costs have risen while local sales have declined, further exacerbating the issue.

"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," said Barry Engle, GM executive vice president and president of GM International.

It's not immediately clear what those "next steps" may be, but it seems obvious that GM is leaving everything on the table--including a complete exit from South Korea.