GM Korea to chop Gunsan factory’s 2,000 jobs

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GM Korea to chop Gunsan factory’s 2,000 jobs

General Motors will close its factory in Gunsan by the end of May, sacrificing up to 2,000 jobs.

The Gunsan factory in North Jeolla, 270 kilometers (167.7 miles) south of Seoul, has been running at an operation rate of 20 percent for the past three years due to slow demand, according to the company.

Such cost reductions are expected to continue as the U.S. auto giant leaves underperforming countries - unless Korea’s government and GM Korea’s second-biggest shareholder, the Korea Development Bank, come up with a way of saving the local unit.

“[General Motors] is at the critical juncture of needing to make product allocation decisions,” said Barry Engle, General Motors’ executive vice president, in a release Tuesday. “The ongoing discussions must demonstrate significant progress by the end of February, when General Motors will make important decisions on next steps.”

The Korean government has been playing a tug-of-war with the U.S. automaker on how to share the cost of a GM Korea turnaround plan. It wasn’t pleased with the latest turn of events.

“We are very disappointed with General Motors’ one-sided announcement on its decision to stop manufacturing and shut down GM Korea’s Gunsan assembly line,” Korea’s Ministry of Strategy and Finance said in a statement Tuesday after GM Korea announced the plant shutdown.

“As a global leader, we expect General Motors to act responsibly and cooperate with the Korean government and stakeholders to normalize GM Korea’s business,” it added.

The Gunsan factory, the smallest of GM Korea’s four production lines, is responsible for some 2,000 regular and contract employees. GM Korea said it is currently offering voluntary retirement packages to factory workers and denied that any can be moved to GM Korea’s other plants.

Chevrolet’s midsize Cruze sedan and Orlando SUV, which are sold domestically and exported, are made at the plant. Due to slow demand, the factory, which is capable of churning out 260,000 units a year, made 31,000 units last year.

But the employees, who are members of the hard-line Korean Metal Workers’ Union, have been receiving 80 percent of their monthly wages in accordance with the contract signed between the union and the company.

Domestic sales and exports of Orlandos and Cruzes will be fulfilled with existing inventory, the company said, through the plant’s closure in May.

When existing inventories run out, sales of Orlandos and Cruzes in Korea will be suspended. Export markets will have to be supplied by factories in other countries.

“This is a necessary but difficult first step in our efforts to restructure our operations in South Korea,” said Kaher Kazem, CEO of GM Korea Tuesday.

The state-run Korea Development Bank announced Tuesday evening it would perform due diligence on GM Korea to decide whether it will give financial aid to the troubled company.

“General Motors asked us to support GM Korea by helping it increase capital by issuing new stock,” said a spokesperson for the KDB. The KDB owns 17 percent of GM Korea’s shares and if the company decides to issue new stock, KDB will help the company by purchasing new stocks to maintain its stake.

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