General Motors (GM) announced the plans to shut down the factories in Gunsan as part of restructuring strategy. For years, there have been speculations that GM will leave South Korea. GM acquired Daewoo Motor, subsidiary of Daewoo group in 2002. State-run Korean Development Bank (KDB), the second largest shareholder, holds 15-year veto rights against GM’s major management decisions providing agreement. Veto rights specify that withdrawals of GM’s operations from Korean market need approvals from KDB. However, more than 15 years after the both parties signed agreements about veto rights in 2002, they are expired, and concerns are raised that GM decides to withdraw operations from Korean market. GM Daewoo recorded a series of huge losses and its sales records have been declining. GM’s CEO Mary Barra closed the unprofitable international operations in Australia, Indonesia, and Russia and sold European subsidiary, Opel to PSA Group in 2017. She makes concerted focus on profitability, shutting down Gunsan operation which can be the first step for GM to make withdrawals from Korean market.
There are several factors that trigger GM to close Gunsan operation. GM Daewoo suffered from huge financial losses which amount to 2.6 thousands billion won for the past four years and sharp increase in labor expenses 50 percent higher than those in 2010. Also, closing down factories in Australia, Russia, and Europe shrinked the customers. GM Daewoo confronts adversarial employment relations with five major labor strikes after 2009. As Gunsan factory is underutilized with 20 percent of full production capacity, it is reasonable for GM to shut down Gunsan plant. However, Korean policymakers and labor unions raise questions about its arguments for restructuring decisions. There are some factors that inflicted financial damages to GM Daewoo other than low sales and increasing labor expenses. For example, it paid higher interests for loans from GM headquarter and sold cars without profit margins. It also paid 40 to 70 billion won for administrative overhead to the headquarter annually.
GM Daewoo’s Gunsan workers were anxious about restructuring the decision. GM Daewoo receives voluntary retirement applications and estimates restructuring charges as 922 billion won including termination benefits and pension obligations. After the notification, two workers commited suicide. Since the workers had no alternatives, they were severely concerned about negative consequences from job termination. Local suppliers are forced to downsize operations and confront the risks of financial bankruptcy, due to shutting down Gunsan factory.
However, we still have hope. The top management confirms that GM wants to stay in Korea and argues against rumors about complete withdrawals from Korea. GM Korea has engineering and designing research function that is a key to technological innovation and global strategic operations. Although we lose the Gunsan plant, there are three plants in Bupyeong, Changwon, and Boryeong. GM still needs strategic plans to manage those plants efficiently and effectively.
We highlight the value of GM Daewoo as a design and engineering research hub for its multinational operations. We make efforts to provide incentives for GM to utilize Korea operations as a way of revitalizing engineering and design functions. The government needs to provide financial and institutional supports for three plant operations on the condition that GM headquarter makes investment into those plants to improve operational efficiencies. We also have plans to provide supports for workers who will be the victims of GM Korea. It is necessary for them to train and develop job-related competencies that can be alternative employment opportunities.
Kim Hyon-dong kim1415@dongguk.edu
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