February 13, 2018 / 1:21 AM / 8 months ago

GM to shut one South Korea plant, decide on fate of others within weeks

DETROIT/SEOUL (Reuters) - U.S. President Donald Trump on Tuesday used a decision by General Motors Co to close one of its four plants in South Korea to launch fresh criticism of the U.S.-South Korea trade agreement.

General Motors President Dan Ammann speaks during GM's press conference at the North American International Auto Show in Detroit, Michigan, U.S., January 16, 2018. REUTERS/Rebecca Cook - HP1EE1G15Y2X6

Trump referred to GM’s announcement that it would close an auto factory in South Korea, and then turned to the subject of the U.S.-South Korea free trade agreement, where the concerns of U.S. automakers are a central issue.

“We have a very bad trade deal with Korea,” Trump said during a meeting with a bipartisan group of lawmakers to discuss steel and aluminium imports. “We’ll either negotiate a fair deal or we’ll terminate the deal - but before we do that, already General Motors is coming back into Detroit. That is a really significant statement.”

GM did not say that it plans to move production of vehicles to the United States from South Korea as part of its restructuring of operations there.

“The announcement is related to our need to restructure our business in South Korea. Depending on the outcome of those restructuring efforts there could be broad global implications but as we said yesterday we need the full engagement of all stakeholders with a sense of urgency,” the automaker said in a statement after Trump’s comments.

The White House did not immediately provide clarification on whether Trump had been told by GM that vehicle production would be moved from South Korea to Detroit.

The U.S. automaker said it would decide the future of its remaining South Korean operations within weeks, and is in talks with the South Korean government and labour unions on how to cut costs and make the business profitable.

“Time is short and everyone must move with urgency,” GM President Dan Ammann told Reuters.

South Korean officials said on Tuesday that financial aid to GM Korea will depend on the automaker’s willingness to commit to new investment in the operations that remain.

Ammann told Reuters GM will invest “if we are successful in working with our stakeholders to restructure and get to a viable cost structure.”

GM’s move is the latest in a series of steps to put profitability and innovation ahead of sales and volume. Since 2015 GM has exited unprofitable markets including Europe, Australia, South Africa and Russia.

GM’s plan places South Korean President Moon Jae-in in an uncomfortable spot. Just as Trump has done in the United States, Moon has pledged to create more jobs and provide job security as his top economic policy.

Opposition lawmakers criticized Moon’s administration on Tuesday for the potential job losses from GM’s strategy for the country.

The South Korean government said in a statement it regretted GM’s “unilateral” decision to close the plant. It said it wanted to conduct an audit of the automaker’s local arm, GM Korea, as it weighed options to help with the restructuring plan.

GM said in a statement it would take an $850 million charge to reflect the restructuring costs, including $375 million in cash related to employee expenses. Most of the financial writedowns would be recorded by the end of the second quarter.

South Korea was for years a low-cost export hub for GM, producing close to a fifth of its global output at its peak. But sharp rises in labour costs, weakening demand for sedans, which GM Korea mainly produces, and big investments in neighbouring China hurt the South Korean business’s competitiveness.

The plant shutdown is part of its broader Asia business restructuring. Excluding profits from China, GM said its Asian operations lost money in 2016. GM Korea posted a total of 1.9 trillion won ($1.8 billion) in net losses between 2014 and 2016.

The automaker’s decisions to exit other unprofitable markets have exacerbated problems for GM Korea, which used to build many of the Chevrolet models GM once offered in Europe. Declining sales of small cars in the United States have also hurt demand for Korean-made Chevrolets.

HIGH LABOUR COSTS, LOW OUTPUT

The first step in the South Korean restructuring plan is the closure of GM’s plant in Gunsan, southwest of Seoul, which employs 2,000 out of GM’s 16,000-strong South Korean workforce.

The factory was running at about 20 percent of its full production capacity last year, GM said.

South Korea’s state-run development bank owns a 17 percent stake in GM Korea. The Detroit automaker owns 77 percent of the operations while GM’s main Chinese partner, SAIC Motor Corp Ltd, controls 6.0 percent.

($1 = 1,083.1000 won)

FILE PHOTO: A worker checks cars made by GM Korea in a yard of GM Korea's Bupyeong plant before they are transported to a port for export, in Incheon, west of Seoul August 9, 2013. REUTERS/Lee Jae-Won/File Photo

Reporting by Roberta Rampton and David Shepardson in Washington and Joseph White in Detroit. Additional reporting by Ju-min Park and Joyce Lee in Seoul; Editing by Muralikumar Anantharaman and Phil Berlowitz

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