GM Korea has announced that it will cease production and close its Gunsan, South Korea plant by the end of May 2018.
The Gunsan facility has been increasingly underutilised, running at about 20% of capacity over the past three years, making continued operations unsustainable.
“This is a necessary but difficult first step in our efforts to restructure our operations in South Korea. We recognise the contribution and support of our employees, the wider Gunsan and Jeonbuk communities and government leaders, particularly through the most recent difficult period,” said Kaher Kazem, president and CEO of GM Korea. “We are committed to supporting all of our affected employees through this transition.”
GM has been aggressively addressing underperforming businesses globally, and is now focused on finding a solution for its South Korean operations.
The company has proposed to its key stakeholders — including its labour union, the South Korean Government and key GM Korea shareholders — a concrete plan to stay in the country and turn the business around that requires the full support of all parties. The proposal includes significant product-related investments in South Korea and would preserve thousands of jobs.
“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.
As a result of this action, GM expects to take charges of up to $850 million, including approximately $475 million of non-cash asset impairments and up to $375 million of primarily employee-related cash expenses. Substantially all of these charges will be recorded by the end of the second quarter of 2018, and will be treated as special and excluded from the company’s EBIT-adjusted and EPS-diluted-adjusted results.
Based in Incheon, Korea, GM Korea has made significant contributions to the Korean economy and automotive industry over the last 16 years, producing 10 million vehicles since its establishment in 2002. GM Korea supports approximately 200,000 direct and indirect Korean jobs. In 2017, GM Korea sold 132,377 units in Korea and exported 392,170 vehicles to 120 markets around the world.
The automaker’s three other assembly plants in South Korea built 485,403 vehicles last year. GM sells Chevrolet and Cadillac brand vehicles in the Korean market, and more than half the vehicles built by GM’s Korean plants are exported.
GM’s move to shrink its South Korean operations is the latest in a series of steps over the past three years to put profitability and investments in new technology ahead of sales and production volume. GM has since 2015 exited unprofitable markets in rapid succession, including Europe, Australia, South Africa and Russia.
GM Chief Executive Mary Barra has said she will focus GM’s engineering and capital on profitable markets, mainly the United States and China, and new technologies such as electric and automated vehicles.
The automaker’s decisions to exit other unprofitable markets have exacerbated problems for GM Korea, which used to build many of the Chevrolet models GM once offered in Europe. Declining sales of small cars in the US have also hurt demand for Korean-made Chevrolets.