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GM’s CEO says Korean unit may not make it

Feb 08,2018
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Mary Barra
General Motors CEO Mary Barra put in doubt the future of the company’s Korean unit, which may suffer the fate of GM’s Indian, European and Australian factories.

During a conference call with analysts on Tuesday, Barra described Korea as a “challenge” and said it may go through “rationalization actions or restructuring.”

“Korea is clearly a challenge for us,” the 56-year-old CEO said. “The current cost structure has become challenging and we are going to have to take action forward to have a viable business.”

Under Barra, General Motors has gone through radical restructuring outside its U.S. home turf since 2014.

Last year, it pulled out of India, exiting one of the world’s largest automotive markets, after concluding it was not as profitable as expected.

It sold European units Opel and Vauxhall to France’s PSA Group. It shut down assembly lines in Australia and suspended manufacturing in South Africa.

“We are going to take steps necessary to have the franchise going forward and it may result in rationalization actions or restructuring that could potentially have a material impact on our results,” Barra said. “But it is too soon to tell right now.”

GM Korea’s performance has been on a decline over the past several years. The number of cars it sold dropped from 630,000 units in 2014 to 520,000 units last year.

It is barely holding onto the No. 3 spot in the domestic market, with SsangYong Motor and Renault Samsung Motors eager to claim it.

Total operating losses from 2014 to the end of 2017 are estimated to have reached 2.5 trillion won ($2.3 billion).

As the unit’s performance suffers, costs rise due to demands by the company’s union, which is part of Korea’s hard-line umbrella union Korean Metal Workers’ Union.

Due to prolonged wage negotiations and strikes, GM Korea’s production was disrupted in 2016 at the cost of some 15,000 units. Last year’s negotiations were settled just last month.

GM Korea’s assembly line in Gunsan is now operating at 20 percent capacity due to slow demand. Its workers, however, have been receiving up to 80 percent of their ordinary wage even on days the factory is not operating, according to an agreement between the union and the company.

“It is hard to say what action General Motors will take in the long term, but it seems downsizing the factory will take place for sure,” said Song Sun-jae, an automotive analyst at Hana Financial Investment. “Barra’s comment may be the U.S. headquarters’ negotiation card to persuade its labor union.”

GM Korea and its union initiated this year’s wage negotiations on Wednesday.

“Negotiating with the union is a critical issue for us right now,” said a GM Korea spokesman. “GM Korea will embark on a wide range of discussions with its business partners to further improve its competitiveness and cost base.”

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]