GM UNIT BRACES FOR NEW U.S. TARIFF PLAN
Higher tax can ‘make or break’ S. Korea subsidiary which has pledged to stay in Seoul for at least 10 years
FRESH off a US$7 billion (RM28 billion) rescue for its loss-making South Korean operation, General Motors (GM) faces a new threat as the United States President Donald Trump considers higher vehicle import tariffs that could “make or break” its Asian subsidiary.
Earlier this month, GM agreed on the bailout package with the South Korean government in return for a pledge to stay in the country for at least 10 years, purchase more Korean-made parts and produce two new models popular in the US market.
But less than two weeks later, the Trump administration launched a national security investigation into car and component imports that could lead to new US tariffs similar to those imposed on imported steel and aluminium in March.
Higher tariffs would be painful for Asian carmakers whose shipments accounted for one third of US vehicle imports last year through heavyweights such as Toyota Corp and Hyundai Motor.
They could also have a devastating impact on smaller players such as GM South Korea and its plan to become a major export hub again.
“This is a matter that could make or break GM South Korea,” said a source.
“The success of its restructuring plan hinges on more production for exports, and the two new models to be manufactured here are primarily targeted at the US market to serve that purpose,” added the source.
GM Korea, GM’s biggest production base in Asia excluding China, exported about a quarter of its vehicle output to the US last year, and the portion is set to rise further as it shifts production toward models popular in the US market following a sales pullback in Europe.
South Korean suppliers provided parts worth nearly US$2 billion to GM’s factories overseas, including the US and Mexico, according to GM Korea.
“The tarrif does not make sense,” said Ko Tae-bong, an analyst at HI Investment & Securities.
“The (South Korean) government injected all the money into the unit, and there will be no other major markets to sell cars other than US after Europe exit.”