Vehicles in a shipping yard at GM Korea’s Bupyeong plant before being exported, in Incheon, South Korea, on Aug. 9, 2013. GM has begun scaling back its factory footprint in the country to stem losses. Photo credit: REUTERS
UPDATED: 2/12/18 9:51 pm ET – adds details
General Motors plans to close one of its four South Korean assembly plants as the first step in a larger restructuring of its unprofitable GM Korea operations.
The automaker late Monday said it will cease production and close its Gunsan plant by the end of May. The factory produces the Chevrolet Cruze and Chevrolet Orlando, according to the company’s website.
GM says the plant, which employs about 200 people, has been increasingly underutilized, running at about 20 percent of production capacity over the past three years, “making continued operations unsustainable.”
GM expects the closure to cost up to $850 million, including about $475 million in noncash asset impairments and up to $375 million in primarily employee-related cash expenses. All of the charges will be substantially recorded in the second quarter, GM said.
The decision to close the factory comes less than a week after GM CEO Mary Barra said company officials were “in discussions” with minority owners and union officials involved with GM Korea that could lead to “some rationalization actions or restructuring.”
“We’re going to have to take actions going forward to have a viable business,” Barra said during a conference call on Feb. 6 to review the automaker’s fourth-quarter and 2017 financial results.
A GM spokeswoman declined to provide additional details of the plan.
“This is the first step in a holistic plan to turn GM Korea into an acceptable return on investment,” she said in an email. “As the plan progresses, we’ll be able to share specific details.”
GM on Monday said the decision to shutter the Gunsan plant “occurs after a careful review of the company’s operations, which have sustained significant losses for the past several years.”
The company said it has proposed “a concrete plan to stay in the country and turn the business around” to key stakeholders in the country, including its labor union, the South Korean government and key GM Korea shareholders. The proposal includes significant product-related investments in South Korea and would preserve thousands of jobs.
South Korea’s government-run development bank owns a 17 percent stake in GM Korea. GM owns 77 percent of the operations while GM’s main Chinese partner, SAIC Motor Corp., controls 6 percent.
The restructuring of GM Korea is the most recent for the automaker, which has spent billions to reshape or cut nonprofitable operations such as selling its European operations, ceasing manufacturing in Australia and reshaping its manufacturing in India for export.
GM Korea, which was established in 2002 with the acquisition of bankrupt Daewoo Motors, employed about 16,000 people in 2017, roughly two-thirds of them hourly workers.
The operations oversee local sales of Chevrolet and Cadillac products, four assembly plants that supply a sizable portion of global output for the Chevrolet brand, four powertrain factories, a proving ground and an advanced engineering and design center that has served as a launch pad for top designers on key products such as the Chevrolet Bolt electric vehicle.
Last year, GM Korea sold about 132,377 vehicles in Korea — down 27 percent from a year earlier — and exported 392,170 vehicles to 120 markets around the world.
The Gunsan plant has five major shops — including a press shop and body shop — as well as assembly lines and three parts assembly facilities for seats, suspensions, and heating, ventilation and air-conditioning systems. It also has a small proving ground.
The restructuring of GM Korea is the most recent for the automaker, which has spent billions of dollars to reshape or cut non-profitable operations. It has sold off its European operations, ceased manufacturing in Australia and reshaped its manufacturing footprint in India for export.