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GM Korearsquos losses piling up plants running well below capacity
<p><strong>GM Korea&rsquo;s losses piling up, plants running well below capacity.</strong></p>

GM Korea Chief Mum on Embattled Automaker’s Future

GM Korea President Kaher Kazem&rsquo;s failing to directly respond to specific questions about a possible pullout has only intensified speculation that GM indeed may decide to withdraw its operations if analysis indicates recovery is not possible, some analysts believe.

GM Korea President Kaher Kazem sidesteps questions from members of  Korea’s National Assembly about rumors that parent General Motors may end its Korean operations.

At a special audit session held Monday, Oct. 23, Kazem instead replied several times that GM Korea executives and workers are doing their best to normalize operations and put the company on track for a sustainable future.

A GM Korea spokesman confirms Kaher was questioned at the National Assembly but does not comment on his responses.

The National Assembly audit is being held throughout October and focuses on government-owned businesses that include the Korea Development Bank, a 17% stakeholder in GM Korea.

Failing to directly respond to specific questions about a possible pullout has only intensified speculation that GM indeed may decide to withdraw its operations if it determines recovery is not possible, some analysts believe.

The rumors have become intense in recent days as the Korea Development Bank on Oct. 17 lost its 15-year-term veto power over any GM decision to downsize or close any of its Korean facilities. The veto-power clause was part of GM’s acquisition of the main domestic assets of the bankrupt Daewoo Motors.

Speculation about a significant downsizing or pullout from Korea also has intensified as GM completed its pullout from both India and Australia. The last GM Holden vehicle was produced Oct. 20, ending the brand’s 70-year vehicle production history in Australia.

Kazem had been president of GM India and oversaw the closure and sale of the automaker’s main plant to Chinese automaker SAIC, which ended GM’s domestic production and sales operations in that country. His experience in selling off the India plant leads GM Korea union leaders, as well as some security analysts, to believe he has a downsizing or even business-exit mission to perform in Korea.

Whether true or false, or possible, speculation on a GM Korea pullout is hurting sales as GM Korea fights an uphill battle to maintain its domestic-brand viability with Korean consumers.

GM Korea dealership employees report many customers are skittish about making purchases and are questioning them about GM’s rumored pullout from Korea. Such consumer concerns have halved serious inquiries about Chevrolet vehicles, one dealership reports.

These consumer concerns, as well as what some analysts call an unfavorable sales mix, are seen in the automaker’s dismal domestic sales performance.

In September, when all five Korean automakers saw a collective 20% spike in their sales (including the effects of GM Korea’s sales plunge), GM Korea wrote sales contracts for just 8,991 vehicles, a year-on-year decline of 36.1%. It was the first time in six years the automaker failed to sell 9,000 vehicles in any month of the year.

For the January-September nine-month period, GM Korea sold a total of 401,980 vehicles. Domestic sales were down 20% from prior-year, with 102,504 units sold. Exports fared much better but were off 2.3% with 299,476 vehicles shipped.

Even diminutive Ssangyong Motors, Korea’s smallest automaker in terms of sales and personnel, bested GM Korea in the domestic markets and for the first time took over the company’s spot as Korea’s No.3 automaker.

Ssangyong sold 13,168 vehicles in September, a year-over-year increase of 8.4%. Domestic sales totaled 9,465 units and 3,703 were exported.

Simple analysis in the face of GM Korea’s declining sales shows serious underutilization of GM Korea’s production resources. Together the company’s five vehicle assembly plants have capacity to produce 900,000 vehicles annually: Bupyeong, 440,000; Gunsan, 250,000; and Changwon, 210,000.

Obviously, with sales for three-quarters of 2017 running at less than half of total combined plant capacities, asset-utilization rates are in dire territory.

Workers at the Gunsan plant reportedly are working only a few days per week. It has been confirmed the plant is operating at only 30% of its capacity, producing the current- and previous-generation Chevrolet Cruze and the Orlando compact MPV.

In 2016, the situation was not much better. GM Korea sold 597,165 total vehicles, two-thirds of combined production capacity of 900,000 units. This underutilization rate, occurring with record high operating costs, was reflected in the financials: The automaker posted a 2016 net loss of 630 billion won ($558 million).

This brought cumulative net losses for three consecutive years to 1.96 trillion won ($1.7 billion). The 2015 net loss was 980 billion won ($868 million), compared with 350 billion won ($310 million) in 2014.

GM Korea has been forced to obtain credit through its own GM in-house lending sources as Korean banks are demanding high interest rates and imposing other restrictions to provide financing for operations.

Analysts believe GM Korea again will experience a net loss for 2017. The automaker still is at loggerheads with its aggressive labor union, which is demanding a monthly per-worker wage hike of 154,883 won ($136) and bonuses equal to five months’ pay.

Management says it is impossible to meet these demands. Wage talks have been suspended until mid-November while the union holds elections for a new slate of officers.

GM Korea spokesmen are saying the planned December launch of a diesel-equipped Cruze built at the Gunsan plant will help spark domestic sales. Gasoline-powered new-gen Cruze models thus far have not fared well, partly because of relatively high sticker prices.

GM Korea also hopes increased imports of the Bolt battery-electric vehicle will help its sales picture in 2018. But the Bolt is produced and imported from the U.S. and will not help the local plant-utilization situation. The company imported just 600 Bolts in 2017, all of which were quickly sold.

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