On Tuesday, General Motors Korea Company announced it will stop production and close one of its four vehicle assembly plants in South Korea by the end of May as part of a restructuring of its money-losing business in Asia’s fourth-biggest economy.
The plant is located in Gunsan, 270 kilometers south of Seoul, which employs some 2,000 workers. The Gunsan facility has been increasingly underutilized, running at about 20 percent of capacity over the past three years, making continued operations unsustainable. The automaker has five production factories in Korea, where four are car assembly plants and one is a transmission factory.
The decision comes as part of GM’s wide restructuring program across the globe. It has been phasing out underperforming productions and it “is now focused on finding a solution for its South Korean operations,” the local unit of the US carmaker 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,” Barry Engle, GM Executive Vice President, said in a statement.
The company has recently asked its key stakeholders, including its labor union and the South Korean government, for support as it pushes forward a program to turn its loss-making business around. Such move needs the full support of all parties, 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,” Kaher Kazem, GM Korea President
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. This is to preserve a sustainable presence for its Korean unit, the statement said.
GM Korea’s combined sales plunged 12 percent on-year to 524,547 vehicles from 597,165 for the whole of 2017.
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.
The Seoul government and GM Korea’s union issued statements in response to the carmaker’s move to close the Gunsan factory.
The South Korean government expressed deep concerns over the decision by the automobile company to shut down Gunsan plant, saying the KDB will meet with GM to check the GM Korea’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.
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