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Korea’s Detroit

GM Korea has betrayed all of Gunsan’s efforts and commitments.
Feb 28,2018
The air in the industrial city of Gunsan in North Jeolla is stifling. The streets are laden with banners condemning the closure of the GM Korea plant. Some plead for sympathy to help save a homegrown automaker, one of the oldest in Korea and formerly Daewoo Motor. But today’s GM Korea is hardly one of Korea’s as the Detroit-based automaker owns 77 percent of it.

Still, Gunsan residents are desperate, said an official from the local government. The city has gone all out to help the production site which has been underutilized and generating yields of just 20 percent of its capacity for the last three years. At the city hall building, GM models rolled out from the Gunsan plant are exhibited. The company has betrayed all of Gunsan’s efforts and commitment, the official said. “I feel like kicking and wrecking the GM cars on display at city hall,” he said.

The city has been naïve to the ruthless rule of global capital. GM CEO Mary Barra, who became the first female leader of an automaker in 2016, has been dubbed a rule breaker for divorcing from the traditions of the auto industry. Instead of keeping to economies of scale, she chose downsizing to focus on improvements in the balance sheet.

Under her helm, GM has turned out a better bottom line by shedding money-losing markets, operations and models. It sold Opel, the company’s former European subsidiary, to pull out of the small sedan market in Europe. The Gunsan plant, which supplied engines and assembled cars to the European market, took a direct hit. In its crusade to turn a century-old automaker from the brink of bankruptcy, GM did not care about the ramifications on a small industrial city on the other side of the Pacific.

GM Korea partially owes its troubles to a militant union, but they were triggered first by GM’s global strategy. GM has been using Korea as a manufacturing base for car engines since the 1970s. It began producing finished cars here after taking over Daewoo Motor in a fire sale following the collapse of Daewoo Group. Since 2002, GM Korea has been responsible for producing the American automaker’s small sedans. The business went well when high oil prices made compact cars popular and slumped when oil prices fell.

GM did not assign lucrative models to Korean factory lines. Outside the biggest car markets — China and the United States — GM used offshore operations as assembly lines for shipments to bigger markets. The Korean unit and workers can hardly complain against the global business strategy of a multinational company.

GM Korea’s degradation should have been foreseen when it was sold off at a dirt cheap price. GM even wanted to leave out Daewoo’s Bupyeong plant just outside Seoul. Out of fear of a massive unemployment crisis, the Seoul Metropolitan Government agreed to GM’s terms in order to sell off the company in full. Few policymakers had an eye for the sale’s long-term impact on the Korean auto industry.

Fortunately, the current conditions aren’t as bad as they were then. GM cannot easily exit from Korea as it did in India, Russia, and South Africa because of the value in Korean manufacturing, design and development capacity. GM does not have the full upper hand. The government must respond to negotiations with consideration of the impact on Korean industry. GM has offered to assign two new models to the Korean unit, but that is not enough. GM Korea has no future by merely supplying fuel and unprofitable compact cars with a questionable future. Korea must be able to take charge in future cars such as electric and self-driving vehicles.

GM will be bargaining with Korean jobs at stake. Korean negotiators must cut a deal with GM by bargaining its future. Korea will come up empty-handed if it provides tax benefits to turn the Korean operation around without such security. If GM Korea does poorly in sales and runs out of money a few years later, the American automaker could demand more government funding with the threat of pulling out again.
At worst, Seoul should tell GM to leave if it wants to. Instead of repeating the mistake over and over through a poor deal, it is better to draw up an entirely new plan. Workers and parts suppliers could be victimized in the process. Layoffs and chain bankruptcies should be worked out through other means of financial aid or enhancement of social security.

A deal should be a win-win. To make it so, a negotiator must not be afraid to wage a chicken game. Bluffing is also a negotiating and winning skill. The question is whether Seoul authorities have such deal-making skills and boldness against GM with its long experience in handling governments around the world.

JoongAng Ilbo, Feb. 27, Page 30

*The author is an editorial writer of the JoongAng Ilbo.

Lee Hyun-sang