GM Korea is set to celebrate its 15th anniversary of operations in South Korea on Monday.
However, instead of being a festive occasion to mark the milestone, the US carmaker is laying low, as it is burdened by low sales and a growing deficit on the back of the slowing domestic market.
Coincidentally, its anniversary overlaps with the expiration of the South Korean government’s right to veto GM’s decision to leave the country, further fanning speculations on what the company’s next strategic move will be.
Persistent rumors of the automaker possibly leaving the country have been raising concerns over the impact it would bring on the local economy and the auto industry, including thousands of part makers.
|In this photo, taken July 6, 2017, a GM Korea worker passes by the west gate of the carmaker`s plant in Bupyeong, just west of Seoul. (Yonhap)|
GM Korea is the nation’s third-largest carmaker as of last year, after Hyundai and its sister affiliate Kia, with 14 percent of market share.
The company has about 16,000 workers working at its four plants in Bupyeong, Gunsan, Changwon and Boryeong, paying more than 1 trillion won as their salaries, and transacting 1.4 trillion won worth of deals to first-tier suppliers a year.
Based on a simple calculation, the possible departure of GM could lead to around 16,000 workers suffering from job insecurity and massive the bankruptcy of its suppliers. Such a scenario could also put a damper on the auto industry which is already in a slump amid fierce market competition and technological advances, as well as the local economy, experts said. GM accounts for 20 percent of the economy in Bupyeong, a part of Incheon where its local headquarters is located, with more than 20 billion won of local taxes paid a year.
The US carmaker has maintained that the sudden resignation of former CEO James Kim in July was of his own decision, and that its operations in Korea are and will continue to be an important part of its business, touting the country’s role as a design and research and development hub.
The performance of the carmaker, meanwhile, has suffered here.
According to GM Korea and the Korea Association of Automobile Manufacturers, GM Korea sold 401,980 units in and out of the country between January and September, a 7.5 percent decrease from last year.
A steep downturn in the domestic market was a major problem. The carmaker’s domestic sales in September plummeted 36.1 percent on-year. Its accumulated domestic sales through last month dropped 19.9 percent, further narrowing the carmaker’s presence in the domestic market.
As of August, GM Korea’s market share was 7.8 percent, the lowest in its 15 years of operation here.
Not only rising labor costs, but also the weakening compact car market worldwide has hurt GM’s performance here. Korea has been GM’s manufacturing hub for compact cars and sedans.
GM Korea lost 531 billion won ($468.7 million) in operating deficit last year alone. When counting its piling losses from its manufacturing plant in Gunsan, North Jeolla Province, which operates at only 20-30 percent of capacity, the carmaker’s deficit will hit 2.5 trillion won this year.
The automaker’s fiscal soundness has also been hurt as it has poured investments into R&D projects while enduring sales losses.
Of the top five automakers, the percentage of GM Korea’s spending on R&D of its revenue reached 5 percent last year, or 614 billion won, while Hyundai and Kia spent 2.5 percent and 3.1 percent, respectively, according to data compiled by Herald Business, a local business newspaper.
GM Korea paid 130 billion won on interest to GM Motors for 2 trillion won in loans it borrowed from the head office in the US, it said. The administrative support it received from the headquarters, such as auditing, asset management and accounting, was also subject to payment. In 2015, GM Korea paid 69 billion won for administrative assistance. It paid 43 billion won in 2016.
It remains to be seen whether GM Korea will present a new vision to wipe out rumors and start again. Kaher Kazem, formerly head of GM India, was appointed the new head of GM Korea beginning Sept. 1.
The new CEO and the company are seeking the opportunity to hold a meeting with South Korean press, a public relations representative said, adding no particular event is scheduled to mark the anniversary.
In 2002, GM acquired Daewoo Motor, formerly an auto unit of the now-defunct Daewoo Group, on condition of maintaining its management right for 15 years. The provisions of the agreement were made between GM and the state-owned Korea Development Bank, which holds 17.02 percent of shares in GM Korea.
By Cho Chung-un (email@example.com)