The country's third-largest automaker GM Korea is to lay off 2,100 people when it shuts down an assembly plant in Gunsan in southwestern Korea. GM on Tuesday said the decision was "unavoidable" since the plant has been operating at less than 20 percent of capacity over the last three years.
All 2,100 workers have been offered voluntary retirement packages without the option of relocating to another GM factory. They will receive around W200 million each in severance pay.
The U.S. parent company is in negotiations with the government and unions here over subsidies and pay cuts to avoid shutting down its entire Korean operation. GM President Dan Ammann told Reuters, "Time is short and everyone must move with urgency." Ammann gave an ultimatum for the end of February.
But the decision came as a shock to both the government and Gunsan city. The government was informed only a day before it was announced. "We are at a loss for words, since the decision was totally unexpected," an official at the Ministry of Trade, Industry and Energy said.
GM Korea operates two more car plants in Korea, in Bupyeong west of Seoul and Changwon in South Gyeongsang Province, and employs 14,200 workers, swelling to 300,000 if subcontractors are included.
The automaker sold only 524,547 cars last year, down 12.2 percent from 2016. Cumulative losses over the last four years stand at W3 trillion (US$1=W1,086). The Gunsan plant manufactures the Chevrolet Cruze sedan and Orlando multi-purpose vehicle, neither of which has much of a market anywhere.
The main reason behind the closure is a strategic shift at headquarters. GM shut down its Chevrolet brand in Europe in 2013, dealing a heavy blow to GM Korea, which made the Cruze as well as the Spark subcompact that were sold in Europe. That sent GM Korea's exports plunging from 630,000 in 2013 to less than 400,000 last year.
Another reason is the high wages and low productivity at the Korean subsidiary. Korean automakers are plagued by one of the lowest productivity rates in the global industry and endless battles with their militant unions.
It takes Korean automakers an average 26.8 hours to roll out one vehicle, compared to 24.1 hours at Japan's Toyota and 23.4 at GM in the U.S. But the average annual wage at Korea's five automakers in 2016 was W92.13 million, while Toyota's average annual wage worldwide is W91 million and Volkswagen's W80 million.
One researcher at a state-run think tank here said, "It was impossible to keep the Gunsan plant running after such low productivity and declining sales."
GM Korea is expected to drastically downsize its Changwon and Bupyeong operations to cap its output here at 500,000 cars a year. Currently the two plants produce a combined 650,000 vehicles. But downsizing will require union consent, and unionized workers said they will rally on Wednesday and proceed with a strike in protest against restructuring.
The government wants to keep negotiating with GM to keep it in the country. The state-run Korea Development Bank plans to launch a due diligence study to pinpoint the causes of the carmaker's troubles.