GM Korea set to mark 15 years amid rumors, snowballing deficit
[THE INVESTOR] GM Korea is set to celebrate its 15th anniversary of operations in South Korea on Oct. 16.
Rather than being a festive occasion to mark the milestone, however, the US carmaker is apparently in no mood to celebrate, as it faces persistent suspicions over its operations.
General Motors Co. Chevrolet automobiles bound for export sit parked at the Port of Incheon. Bloomberg.
Rumors have been swirling that it may leave the country, as it faces snowballing deficit, declining sales and the surprise replacement of its country head.
The milestone on Oct. 16 coincides with the expiration of the South Korean government’s right to veto GM’s decision to leave the country.
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.
If the US carmaker decides to leave, its impact on the local economy as well as the auto industry will be immense, insiders have said, highlighting the nature of the auto industry‘s vertical business system involving thousands of parts makers.
The US carmaker has maintained that the sudden resignation of former CEO James Kim was by his own decision, and that its operations in Korea are and will continue to be an important part of its business, touting its role as a design and research and development hub.
The carmaker, meanwhile, has suffered lagging performance 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 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 mark 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.
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.
By Cho Chung-un/The Korea Herald (firstname.lastname@example.org)