GM Korea speculation resurfaces as management issues 'sustainability' warnings

General Motors has proven that it is not afraid to exit major markets if they are not paying off, and recent comments from management suggest the spotlight could soon fall on South Korea. The manufacturer has already stopped production operations in Indonesia and Thailand. After a prolonged and severe Russian downturn it ended almost all sales in the country. It withdrew the Chevrolet brand from Europe and sold off Opel to PSA. More recently it confirmed plans to stop selling in India and to halt both sales and production of Chevrolet models in South Africa by the end of this year. Korea may be next. "Korea is a challenging market for us. We have a strong presence there, a strong brand there and a healthy market share, but the cost structure - not only for us, but the overall industry in Korea - has grown to where it's not sustainable," Chief Financial Officer Chuck Stevens told analysts. Speaking in the latest earnings call, he cautioned: "We are going to have to take action there on a go-forward basis to address that, to build a viable sustainable business. Clearly, there are challenges there with our labour partners. It is a very dynamic and challenging environment to get things done, but we have a strategy that we're starting to execute." Stevens cautioned that it was "too early to talk about" details just now but promised there would be "more to come on that as it progresses." This isn't the first time there's been speculation about a withdrawal from South Korea. Back in 2013 Reuters reported unspecified sources as stating that they feared an eventual shuttering of some GM factories in the country. The company's local operations have reported US$1.78bn in losses over the last three years as they battle steep labour costs. To compound matters, GM has had a turbulent relationship with the South Korean workforce. "General Motors, for some time, has had issues with its South Korean operations, which it bought from local maker Daewoo. The cost advantage isn’t what it was and it has had labour issues with the local unions," observed Autotrader Executive Analyst Michelle Krebs. "It has other options for where it can build vehicles." There could be further risk to the South Korean operations from the withdrawal of Chevrolet in Europe and India along with the Opel divestment, both of which take away some of its export markets. Jonathan Storey of Automotive Reports sees an opportunity to streamline production in the country. The current Buick Encore, a mainly export model, will reach the end of its lifecycle around 2020. Storey suggests it could be transferred to Mexico at that time and built alongside other GM crossovers with which it will likely share a platform. As for a wider market withdrawal for GM, Storey told Automotive World it was "certainly a possibility," pointing specifically to its history of poor labour relations and the sudden departure of local Chief Executive James Kim over the summer. Notably, GM's 15-year commitment to maintain its stake in GM Korea expired in mid-October. "Plus, there is the more general observation that GM is showing a new readiness to make such difficult decisions," he added. Krebs echoed this, noting: "In this new era, GM may well withdraw from South Korea as it did with Russia, India and Europe. GM is willing to ditch money-losing, challenging operations and focus on markets and segments – like SUVs – that are profitable or show promise. At the same time, GM is shoring up funds so it can invest in future mobility." That said, South Korea does make a significant contribution to GM's global organisation. "Korea remains an important market for Chevrolet and has an important role in design, engineering and manufacturing within GM’s global operations - this role has assumed new significance following GM’s disposal of Opel," Storey pointed out. "For the moment my best guess is that GM Korea will remain, but under new Chief Executive Kaher Kazem, will undergo a significant restructuring to return it to profitability."

GM Korea speculation resurfaces as management issues ‘sustainability’ warnings

GM's CFO tells analysts that the company is "going to have to take action" to address challenges in South Korea, writes Megan Lampinen

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