Lost in translation? GM plant shutdown shocks South Korea

SEOUL — Only weeks into a new job heading General Motors Co.’s (GM) international operations, Barry Engle flew into a frigid South Korea in January and held a series of meetings with government officials to discuss the future of GM’s loss-making local unit.

In what they thought were meet-andgreet introductions, senior officials agreed to work with the global automaker on problems at GM Korea, according to South Korean officials with direct knowledge of the meetings.

Last week, Engle made another visit, meeting with the head of state-run Korea Development Bank, which owns 17% of GM Korea. Bank and government officials said Engle asked for financial support and in return, KDB suggested an audit before it would consider committing any fresh funding.

South Korea officials said they left reassured they were making progress working through issues, albeit slowly. Then came the bombshell. On Tuesday morning, GM announced it would shut its Gunsan plant, which employs 2,000, and decide the future of the remaining three other Korean plants within weeks.

“GM only talked about the difficult situation they were in, and asked for our help, but did not say a word about the closure before. It was a shock to us,” a South Korean government official said.

The discord and lack of communications point to rocky negotiations ahead as South Korea seeks to prevent further job losses and provide support for a critical part of its manufacturing sector while avoiding criticism for spending tax payers’ money to support private industry.

The tensions also come at a difficult time for US-South Korean relations given US President Donald Trump’s determination to renegotiate the US-Korea Free Trade Agreement. Any undermining of the Seoul-Washington relationship could also factor against efforts to pressure North Korea over its nuclear and missile programs.

‘DEEPLY ROOTED DISTRUST’

The government official and another source said GM informed Seoul about the decision in a phone call only the evening before its announcement.

The sources declined to be identified because of the sensitive ongoing nature of the matter.

A GM Korea spokesman confirmed the company notified the government about Gunsan closure on Monday, but said the matter had been already discussed and approved by the board, including board members nominated by KDB, last week.

“We plan to seek full support from government and other stakeholders about our turnaround plan,” he said. KDB declined to comment. South Korea’s government said it deeply regretted GM’s unilateral decision and any aid would depend on GM’s new investment into its Korean operations.

GM said it will invest if it is successful in “working with our stakeholders to restructure and get to a viable cost structure.”

“There is deep rooted distrust about GM among government officials. Trust has collapsed a long time ago,” a person familiar with the South Korean government’s thinking said.

KDB believes GM Korea has not shared sufficient information about its finances or the cause of its mounting losses, this person added.

The GM Korea spokesman said it will explain its “transparent practice” to the government during upcoming discussions.

GLOBAL WINDS OF CHANGE

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 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.

In December 2013, GM announced its decision to pull Chevrolet out of Europe. Last year, GM agreed to sell its Opel and Vauxhall brands in Europe to PSA Group. GM Korea, which South Korea’s trade ministry says directly employs nearly 16,000 workers and supports another 140,000 jobs in its supply chain, posted a total of 1.9 trillion won ($1.8 billion) in net losses between 2014 and 2016.

A further complication is pressure from the administration of US President Donald Trump to address the US trade imbalance with South Korea and bring manufacturing back to the United States.

However, the GM Korea spokesman said: “The Gunsan plant announcement is related to our need to restructure our business in South Korea,” and is not being done for political reasons.

Sources familiar with GM’s future planning say the company’s global production strategy is still fluid, but GM could shift production out of Korea to an existing plant in another country.

WORST TIMING

GM’s announcement of the Gunsan plant shutdown and launch of voluntary redundancy plans couldn’t have come at a worse time.

Many salaried South Koreans get bonuses and gifts to celebrate Friday’s Lunar New Year holiday.

South Korean officials are also in the middle of hosting the Winter Olympic Games and have been focused lowering tensions with North Korea, which sent a high level delegation last week.

A Detroit-based source at GM told Reuters the timing of the announcement was dictated by urgency of the matter as its 2018 wage negotiations with South Korean workers have begun. Top management decided the time had come to put a lid on the losses, starting with closure of the Gunsan plant, the person said.

GM’s approach has prompted speculation in South Korea that the automaker is seeking to maximize pressure on President Moon Jae-in’s administration, which has touted job creation as its top economic policy. —