GM General Motors Company

By Mike Colias 

General Motors Co. is sending a tough message to thousands of South Korean workers during the Winter Olympics in Pyeongchang, saying it will close a Korean factory in May and pressure union officials for additional cost cuts to stem losses.

The move, announced early Tuesday by GM Korea, is the latest step in a broad global downsizing implemented by Chief Executive Mary Barra, who has closed, shrunk or sold unprofitable business units in India, Russia, Western Europe and Southeast Asia. The largest U.S. auto maker is becoming more dependent on Chinese operations, where it now sells far more vehicles than it does in any other nation.

The company, once the dominant player in the international auto industry, has gotten significantly smaller under Ms. Barra. GM now holds the No. 4 slot behind Volkswagen AG, Toyota Motor Corp. and the Nissan Motor Co. / Renault SA alliance in global vehicle sales.

The decision to close a plant in the coastal city of Gunsan will trim a glut of unused factory space and lead to a charge of $850 million. The decision affects 2,000 workers at an operation that accounted for only about 7% of the 520,000 vehicles produced by GM Korea in 2017.

GM has three other factories in South Korea, which has long been one of the Detroit auto giant's core units because of its export business and other engineering operations it acquired when it took over the remnants of Daewoo's bankrupt automotive company 16 years ago. The auto maker said Monday the company is committed to keeping Korean operations, but the factory closure is a "first step" in a broader restructuring.

South Korea's government said in a statement that it regretted the decision to close the plant, but that recent talks with GM would continue.

The government said it would direct state-run Korea Development Bank, which has a 17% stake in GM Korea, to conduct a due diligence assessment of recent years of management at GM Korea. South Korean media reported that GM had requested Seoul's support in the form of tax breaks or the participation of KDB in a planned capital increase to keep GM Korea afloat. Government officials declined to comment.

GM has weathered several years of turbulent relations with a union that represents most of the auto maker's 16,000 Korean factory workers. Plants in South Korea produce cars mostly for export to dozens of countries--including Buick sport-utility vehicles sent to U.S. dealerships.

The auto maker said it will work with the union and South Korean officials to restructure the business, signaling it could demand labor concessions and public incentives to help shrink operating costs.

GM President Dan Ammann said in an interview the auto maker has laid out its position to the union and government officials but declined to discuss specifics. He said GM Korea's factories are too costly to operate profitably.

"We've made clear we need to have a business that's sustainably profitable in order for that business to attract further investment," Mr. Ammann said. He said retaining a presence in the country is the "preferred scenario."

The charges, which include $475 million of noncash asset write-downs and $375 million of employee-related cash expenses, will be recorded by the end of the second quarter, GM said.

GM has moved aggressively in recent years to turn around its business in Asia, which loses money outside of China, mostly by exiting markets in which it has had a longstanding presence. Last year, GM said it would withdraw from India, one of the few major auto makers to walk away from a country many are counting on for growth. It also has withdrawn from or substantially downsized in Thailand, Indonesia and Australia.

GM was in growth mode when it acquired Daewoo Motor Co. in 2002, seeking to build its presence across a number of Asian markets to cement its status as the world's largest car company by sales volume.

GM would use Korea as an export hub for other Asian markets as well as Europe, where it was making a push to establish its Chevrolet brand with inexpensive, rebadged Daewoo cars.

But the Chevy push fizzled in Europe, where GM owned another mainstream brand, Opel. GM decided in late 2013 to yank Chevy from Europe, leaving no more need for GM Korea to produce inexpensive Chevys to fill European showrooms.

GM Korea's operations also include several engine plants and an engineering center that did much of the work to create the Chevy Bolt electric car, considered the first relatively affordable vehicle that can travel a long distance--about 240 miles--on a single charge.

GM signaled looming cuts at GM Korea last week when it reported fourth-quarter earnings, which were hurt by lower production in Korea.

"We're going to have to take actions going forward to have a viable business," Ms. Barra said.

In a research note last week, Barclays analyst Brian Johnson said restructuring Korea might not have a "significant impact" on GM's bottom line but "serves as a reminder of how nimble management has been, playing only in areas where it can win."

Kwanwoo Jun contributed to this article.

Write to Mike Colias at Mike.Colias@wsj.com

(END) Dow Jones Newswires

February 13, 2018 00:16 ET (05:16 GMT)

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