GM Threatens Bankruptcy for GM Korea

Government bailout and union concessions by April 20, or else… Government accuses GM of “opaque” management.

Manufacturing small cars profitably is tough in a world where SUVs are hot. But this…

Barry Engle, GM executive VP and president of GM International, threatened on Monday during a meeting with the union leader that GM Korea would file for bankruptcy if the union doesn’t make the concessions GM seeks by April 20, according to union document reviewed by Reuters.

He also said the South Korean government – which owns 17% of GM Korea via the state-owned South Korean Development Bank – should promise to provide support for GM Korea by April 20. GM claims that GM Korea needs $600 million in funding by the end of April. And more layoffs loom.

On March 9, Engle had said in a letter that without more funding GM Korea would face a first quarter “cash crisis.” GM would convert $2.7 billion in debt that GM Korea owes GM into equity, he said. This would lower the interest expense that GM Korea has to pay to GM. GM would also “fund its portion of the $2.8 billion in investment required to bring products to market and update the tooling and equipment to build them.”

The union had conceded at the time that it would not demand a pay raise and bonuses this year. But it asked GM for a future production plan and job security. A union official told Reuters that GM Korea still insists that the union agree to cut benefits.

So this threat of bankruptcy moves the big clock forward.

GM Korea employs about 16,000 people. Those jobs would be at risk. GM had said in February that about another 180,000 jobs depend on the industries that support and supply GM Korea’s four manufacturing plants. Many of those secondary jobs would also be at risk.

Production has plunged 44% from 943,000 vehicles in 2007, when it was still GM Daewoo, to 524,000 vehicles in 2017, of which 392,000 were exported, including to the US.

According to GM’s statements, GM Korea has been losing money. But this may not be so clear-cut. On February 20, Trade Minister Paik Un-gyu accused GM in front of lawmakers of “opaque” management in Korea. “By opaque we mean the high rate of profits to raw material costs, interest payments regarding loans and unfair financial support made to GM’s headquarters.” And he said that taxpayers’ money would not be wasted in government efforts to deal with GM.

This was taken seriously. In early March, the South Korean Development Bank began a due-diligence audit of GM Korea. The result of this audit will be part of the decision whether or not to move forward with the bailout.

The whole fiasco has been years in the making, but it broke into the open on February 12, when GM announced the “first step” in the “necessary restructuring” of GM Korea, namely shutting down its factory in Gunsan “by the end of May 2018.” The “next steps” would affect the three remaining plants, whose fate would be decided “by the end of February.”

So decisions are running a little behind schedule. But the bankruptcy threat was the most serious indication yet where this may be headed without a state bailout.

Hot and heavy breathing is taking place behind the scenes of the looming “trade war.” And it was promptly leaked to calm the markets. Read…  Trump Sends To-Do List to China on Trade 
 

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  52 comments for “GM Threatens Bankruptcy for GM Korea

  1. William Smith
    Mar 26, 2018 at 10:44 pm

    Hmm …. “524,000 vehicles in 2017, of which 392,000 were exported, including to the US.” It would be nice to know the EXACT percentage of its 75% exports were exported to the US. At 16000 jobs, that’s ~12000 jobs involved in exporting. Let’s assume a modest 50% of that 75% exports is to the US. This means that we can equate that with 6000 jobs which GM has exported from the US to Korea. Now GM are playing the extortion game on Korea after having pillaged all they could in the US. The multinational car companies tried such extortion in australia and got shown the door (after many many years of huge taxpayer subsidies) as the taxpayer should not be bailing out private multinational companies who pay very little (or no) tax. Let Korea be a yet another lesson to any country that invites in multinational corporates: you will get shafted eventually. Looking at the larger picture, we need to get back to (much) higher priced durable goods, but also of much higher quality which can be made (and repaired) locally. Instead of “volume”, we should be looking at “price” to make the whole thing viable. Things should be expected and required (by law) to last for decades, not years. Then the high initial cost would be justified. The secondhand market of those durable items which *can*be*repaired*, and for which the parts and documentation are freely available would then serve those of a more price conscious persuasion. In many areas, we are reaching peak technology where most things are becoming just a commodity (as with cars). We need to abandon this idiotic notion that “the health of the economy is directly proportional to the growth of the municipal tip”. This is just Ponzi economics where “planned obsolescence” is de rigueur and is deliberately designed to increase the velocity of money so that the banksters and corporate crooks can skim much of that flow off the top without looking too conspicuous, and with future generations paying for all of this in many many ways.

    • James Levy
      Mar 27, 2018 at 6:32 am

      I’m sympathetic to what you say, but it is very hard to do in an environment of stagnant to falling wages for 60+% of the population. I heard a wonderful phrase the other day: Privatized Keynesianism. It describes the way that credit replaced rising wages and transfer payments from the mid-1970s onward. We transferred the burden of countercyclical spending from governments and corporations to private individuals, then starved most of those individuals of rising real wages to pay off the debts during periods of expansion. That’s why the majority of people never saw a “recovery” post 2000-1 or post 2007-9. They had to borrow more in hard times but could not make it up when the economy ostensibly recovered.

      • sierra7
        Mar 27, 2018 at 7:36 am

        +1000!

    • Nick Kelly
      Mar 27, 2018 at 2:23 pm

      ‘This means that we can equate that with 6000 jobs which GM has exported from the US to Korea.’

      Check the exports: they are Chev Aveo and Pontiac Wave.
      There is no auto company as disinterested in this very small car segment as GM. If GM could wish upon a star, small cars wouldn’t exist.

      The only way the 6000 jobs would come back to GM US would be if the buyers on a budget all switch to GM’s locally built cars, at roughly double the price and half the fuel economy. (for debate’s sake, let’s leave out the folks who prefer small cars, period. like Mini and Fiat 500)

      Not happening. They just go with Nissan Toyota or VW.

      Oh right. but we could ban or tariff ALL imports and then GM could thrive. The consumer, not so much.

      • Marc D.
        Mar 27, 2018 at 3:38 pm

        The Buick Encore and Chevy Trax, two popular small crossovers, are also both made in Korea. The Chevy Spark is also made there. As for the Pontiac, that doesn’t exist anymore.

  2. Miy
    Mar 26, 2018 at 11:54 pm

    Doesn’t matter. go bankrupt GM. South Koreans shouldn’t worry. Hyundai and Kia are rocking it. They will probably just get the operations for nothing and convert to their own production. EVs are the future and Hyundai/Kia have many options and it will be a boon for them if GM is gone from the scene.

    • Mar 27, 2018 at 2:56 pm

      I once heard American car companies called “the original can’t do industry”. GM typifies this.

      Hyundai/Kia could easily supplant GM in electric vehicles that are of far superior quality.

      • Marc D.
        Mar 27, 2018 at 3:57 pm

        The Chevy Bolt has gotten great reviews, and has the longest range of any EV, other than Tesla (238 miles).

    • safe as milk
      Mar 27, 2018 at 4:03 pm

      yes. there is a history here. gm bought that division for peanuts from the bankrupt daewoo during the asian currency crisis. many koreans were very angry about this and saw this as western bankers taking advantage of a situation that they helped create. i suspect that the korean gov’t will direct one of the chaebols to buy the division from receivership and give them financial assistance to save the jobs. they will them offer gm minority partnership in return for selling the cars as product in the us.

  3. Drango
    Mar 27, 2018 at 5:03 am

    Korea had no complaints when American jobs were being lost. Now they want GM to keep building low profit cars there to save Korean jobs. Maybe they can save Hyundai and Kia by continuing to manipulate their currency and protecting their domestic industry, but we’ll see.

    • James Levy
      Mar 27, 2018 at 6:25 am

      You’re missing the big picture: Trump is trying to push US automakers into China, so he can outflank union workers in Korea and America. You think that if US car manufacturers get into China that this is going to mean more jobs and better wages for Americans? It’s the race to the bottom on steroids. What we need is our unions and Korean unions working together and pushing governments to protect union jobs here and there, not turn this into a zero sum game with Chinese coolie labor waiting in the wings to steal all the high-paying unionized jobs out from under relatively free peoples.

      • Mar 27, 2018 at 8:39 am

        James,

        US automakers are already in China. GM sells more cars in China than in the US. All these cars are made in China by GM-China join-ventures that require technology transfer. And GM is already importing its China-made Envision SUV, with more models to follow. Ford will soon import cars from China to the US as well. This started before Trump was elected.

        The problem is EXPORTING US-made cars to China. They’re hit with a 25% tariff in China. Trump wants China to cut that tariff to where it is equal with the US tariff on imported cars (2.5%).

        Trump also wants China to remove the joint-venture requirement and tech transfer requirements when manufacturing in China.

        • d
          Mar 27, 2018 at 4:57 pm

          What P 45 wants should have been the rules from day 1.

          Gm is effectively a chinese company today so it will squeeze ROK and shut down in ROK unless ROK pays them lot to stay just like they extorted from Australia untill the Aussies finally said enough, go way.

        • James Levy
          Mar 28, 2018 at 5:48 am

          But, if as you say they make so many cars in China already, how many cars does anyone think that the US can export there? A few thousand high-end models? How is that going to “bring jobs back to America” or significantly change the balance of trade between our two countries? It seems like grandstanding and window dressing to me.

        • Mar 28, 2018 at 8:28 am

          High-end models are selling very well in China. 1.3 billion people: the 1% amount to 13 million. Those of driving age, maybe 10 million. That’s a big high-end market for cars.

      • Harriet
        Mar 27, 2018 at 8:46 am

        I don’t care for the phrase “Chinese coolie”. You think you are an exceptional person, right? You’ll wake up one day.

        • Mar 27, 2018 at 11:06 am

          You’re not taking that the way it was intended

        • RD Blakeslee
          Mar 27, 2018 at 11:16 am

          I, for one, am getting REAL tired of the self-annointed language policepeople piping up every time their hyper-sensitive ears hear something they “don’t care for”.

          Fact is, Coolies were common in twentieth century China – they hauled more well-off people around the cities in carts. The name is fairly representative of poorer Chinese individuals, I think.

        • James Levy
          Mar 28, 2018 at 5:45 am

          I used it deliberately because that is the way the Chinese government treats its workers, not because I am one iota better. What I believe is that despite all the rhetorical nonsense, when Trump said on the campaign trails that American workers make too much money, he meant it, and he, like every other capitalist in America, would love nothing better than to have powerless workers doing whatever he tells them with no means of pushback, i.e. reduce us to the same condition as Chinese workers are stuck with.

        • chris Hauser
          Mar 30, 2018 at 5:11 pm

          i agree.

          here’s a thought: do you suppose communism took over in china and russia because of the way capitalists treated workers?

          but, the eternal dilemma: low prices or good jobs……

        • d
          Mar 31, 2018 at 12:02 am

          “do you suppose communism took over in china and russia because of the way capitalists treated workers?”

          Communism took over in both places, due to corruption. At that point in time.It was perceived as the least dirty shirt. As normal a very small % of the population was actually in the movement driving it It. In Both places the populace soon realised it had jumped from the frying-pan into a very large fire. In both places any members of the populace who tried to voice this, ended up with a lead injection, in the head. Frequently administered in the nearest field.

          It both places it turned out to be even more abusive, corrupt, incompetent, and dictatorial, that what it replaced.

          Politburo member’s, have more power, and abuse/d it, more freely, to take more, than the mandarins and Boyars, ever dreamed possible.

          If these Communist places were so good, why did so many risk an loose their lives, trying to leave them???

          More Importantly, why were they forbidden by these communist states (which were so good) to leave??

          Proposing Communism, as a cure for the evil segments of the capitalist system, by replacing the whole thing. Is like using Mercury, to treat Gonorrhea. Many patients die, and the survivors are all permanently damaged by the medicine.

          Many of the ills of the current capitalist system are due to the abuse of Globalisation, by Communists. And their Globalised Vampire Corporate Allies.

          The States that allowed Globalisation. Without first establishing a GLOBAL set of rules, Communist and their Allies could not abuse to better themselves at the expense of others, are without doubt to blame for this.

  4. Sinbad
    Mar 27, 2018 at 6:40 am

    GM had been doing the same thing in Australia for many years, demanding taxpayer funded bailouts or closing, eventually after many millions over many years, the government said enough, and refused to pay.
    Basically it’s extortion, corporate socialism, if it’s not a viable business, it should close.

  5. JD
    Mar 27, 2018 at 8:02 am

    I remember the financial media and politicians saying in the 90’s that for every job outsourced , two would be created in the US …. what they didn’t say was those 2 jobs would be looking for another job

    • RD Blakeslee
      Mar 27, 2018 at 11:34 am

      … to add to their part-time “service” jobs ..

  6. lenert
    Mar 27, 2018 at 8:32 am

    Old, spilt milk.

    PACCAR has been screwing the CAW since forever. Making trucks is at best secondary. Management’s number one job is “Recognizing and Reporting Union Organizing Activity.”

  7. Paulo
    Mar 27, 2018 at 8:40 am

    Let it go under. Another manufacturer will fill the product void.

    There are a few issues about autos that contribute to this, and in a greater sense, adds on to the universal woes of industrial/manufacturing and the gilded age of growth growth growth which everyone seems to long for.

    I read awhile ago that the robust growth and manufacturing of the past requires an oil price of $20 per barrel in today’s dollars. Rolled into this statement is the expectation of stable, or rising wages. And here we are, oil today (this morning) is around $66 US, and oil companies are barely surviving at that. The current high cost of energy has been made up with loose lending and increasing debt at all levels; consumer, company, and Govt. Except for the prudent and wise, most of the world seems to be highly in debt with one foot on a bannana peel.

    And what else has happened? To further increase profits auto manufacturing companies have increased the complexity of their products with electronic add-ons and futuristic gadgets. These products have been heavily marketed to the gullible as must-haves, and now are considered to be part of the base vehicle option. In other words, affordability has been taken away and denied.

    I am looking at replacing my restored and completely functional ’86 Toyota 4X4 pickup. I have had it for over 10 years, and with restoration and maint costs added on top of the purchase price I have $10,000 invested, total. It still runs just fine and looks mint, but I can start it with any key or flathead screwdriver and the exhaust is getting louder. I need to do a complete exhaust job from the manifold down but it just isn’t worth the expense. But to replace it with something newer will require over $30,000. I was looking at a Chevy Colorado or a GM Canyon and I can’t get away from the add-ons; the cameras, electric windows, a/c…all of it.

    So, no new truck for Paul and I’ve got the money for one. It just isn’t going to happen. People who will finance this crap simply cannot afford to do so any longer. And if interest rates rise?

    I filled up my wife’s Yaris the other day in town. Gas was $1.48/litre on northern Vancouver Island. In Vancouver (city) it is pushing $1.60/litre. Correspondingly, the price of everything is going up as transport costs increase. Now, who here can afford to buy a new (small) truck that requires over $100 to fill up? I just won’t do it.

    regards

    • RD Blakeslee
      Mar 27, 2018 at 10:44 am

      “Except for the prudent and wise, most of the world seems to be highly in debt with one foot on a bannana peel.”

      Paul, there may be enough of us to help the country survive the coming financial crisis, even if public trust in governance is so low that financial “bailouts” by fiat currency injections are no longer effective.

      While it’s certainly not an all-encompassing indication, I think we can take comfort from the fact that about one-third of credit card users pay their balance in full each billing cycle.

    • Bruce T.
      Mar 27, 2018 at 11:33 am

      Best truck I ever had was one built by Mazda (not Ford then) – a quarter ton truck with no bells and whistles, 5-speed trans., and 30+ mpg. Could not find one like it now anywhere!!! Mores the pity.

      • RD Blakeslee
        Mar 27, 2018 at 11:37 am

        Same with my 1995 Dodge Cummins diesel pickup truck – still in service.

    • Dave Kunkel
      Mar 27, 2018 at 1:26 pm

      I actually would probably buy a new car if I was offered an option to delete all the useless crap. Unfortunately that’s not likely to happen.

    • chris hauser
      Mar 30, 2018 at 5:18 pm

      i say fix it.

      i bought a 2003 volvo a couple of years ago, jeez, it has a lot of electronics, sensors etc but i expected at least 1500 a year in maintenance, beats 500 a month in payments.

      and i drive it mostly for business, so 55 cents a mile deduction…..quick calc gas insurance repairs…..costs about 2500 a year to own.

      heated leather seats, nice sound system, sun roof, reliable, safe, all that stuff.

      can’t afford a new one anyway.

  8. raxadian
    Mar 27, 2018 at 9:57 am

    GM Korea will still crash and burn since the extra cash will at most delay things a year. Heck I totally see it crashing this year even if they get the extra cash.

    Let it fall, GM is sinking anyway.

  9. Bobber
    Mar 27, 2018 at 10:25 am

    When GM decides to make a car in Korea and incur the shipping cost to import it into the U.S., it means Korean labor is a lot cheaper or Korean industrial capacity is better. Unless Americans want to further eviscerate the middle class, we need import tariffs on that stuff, especially stuff coming from China, which doesn’t respect free enterprise (or even voting rights).

    • WT Frogg
      Mar 27, 2018 at 12:06 pm

      Do you honestly think the U.S. consumer is going to pay MORE for a small car which isn’t selling now ??? Not likely. They have swallowed all the Big 3 marketing crap , first regarding pickups and now with SUVs all loaded with “must have ” bells & whistles.
      IMO there are only 2 things that I would add to a 79 New Yorker I had back in the day…..a back up camera & 4 wheel ABS disc brakes. It came with air,power locks and windows from the factory all for $10,000 all in. Same goes for my current 2003 Mercury Grand Marquis LSE…… I would add a back up camera and that’s it.

      • safe as milk
        Mar 27, 2018 at 4:15 pm

        i agree. i recently bought a 1993 vw van. the only thing that i am thinking of adding is a backup camera. there’s even a kit on amazon that uses wifi to connect the camera to the monitor on you dashboard to minimize the wiring you need. it’s on my list for a diy project.

  10. Mar 27, 2018 at 11:27 am

    Robotics will make the outsourcing of cheap labor irrelevant, and the immigration problem as well. Who’s robots work cheaper, China’s or Korea’s? The world is shrinking and so is manufacturing. Now Asia has to step up and build a consumer society and make products for their own workers, and end the isolation associated with national borders. Trump should love China, they have a really BIG wall.

  11. Alex
    Mar 27, 2018 at 11:34 am

    They are getting ‘SAABed’. GM opaque accounting shifts cost to the unit that will be used to extract taxpayer support. Put GM out of business.

  12. patrick k
    Mar 27, 2018 at 12:35 pm

    GM should have been allowed to go bankrupt in 2008. That is how capitalism works. When I lost my job at a company that went belly up no one rode to my rescue. Instead a temporary guard walked me to the front door with my legal box.

    • Mar 27, 2018 at 1:09 pm

      It seems you missed it. GM filed for Chapter 11 bankruptcy on June 1, 2009. It was “reorganized” with shareholders and some bond holders getting wiped out. Numerous of its plants were closed and remained part of the Old GM that was liquidated in bankruptcy court. The New GM received a debtor-in-possession loan from the government to get it through the bankruptcy proceedings. DIP loans are standard in Chap 11 bankruptcy cases. But this was the government, not a bank doing it, given that the banks were also in trouble. GM paid this loan off. New GM also received a large equity investment from the government. New GM emerged from bankruptcy and was renamed “GM.” The government has since sold these shares.

      • raxadian
        Mar 27, 2018 at 3:16 pm

        And New GM is sinking.

        “Dis is a lot of workers your country has in our factory, it would be a shame if they lost their jobs…”

        That’s it! GM is now Gangster Motors in my head!

      • Alex
        Mar 27, 2018 at 6:27 pm

        That deal also shafted the bondholders many who had them in their retirement accounts. And the losses of the Old GM were passed on to the New GM (which had never happened before) so that profits could be offset with those losses for years. GM should have been Chap 7’d and the other players would have bought the assets and formed a better use of them. It was a hand out to the union for political purposes.

        • d
          Mar 27, 2018 at 6:40 pm

          “It was a hand out to the union for political purposes.”

          That cost the US Tax payer over 10 BILLION $ + (10 B being (App) what the US lost, when it sold its stakes in GM).

          All so P 44 could keep the UAW vote.

          And the UAW Workers have still lost the majority of their job’s.

          So the only long term Beneficiaries of the whole deal were, P 44, the UAW officials, china, and GM china.

  13. Javert Chip
    Mar 27, 2018 at 3:28 pm

    GM paid back the bank loans, but I’ve never read an analysis claiming the government sold its GM equity position (GM stock) for enough to fully recover the initial equity investment.

    Additionally, the Obama administration pressured bankruptcy courts not to wash away GM’s “Net Operating Loss” carry-forward tax deductions. These are good for 10+ years and shield GM from paying Federal taxes on roughly $45B of GM profits.

  14. TJ Martin
    Mar 27, 2018 at 4:10 pm

    The 21st century GM Obituary Pages

    GM Europe/Germany ( OPEL ) – Deceased

    GM UK ( Vauxhall ) – Deceased

    GM Australia ( Holden ) – Deceased

    GM S.Korea – ” Dead Man Walking ‘

    Then there’s the side ventures ;

    SAAB – Deceased

    GM / FIAT partnership – Deceased

    And then there’s the brand names within ;

    Buick – Deceased

    Pontiac – Deceased

    With GMC and Buick hanging on by a slender thread … Cadillac in the financial weeds .. and Corvette who hasn’t seen a dime of profit since god knows when .

    Begging the question … when do we the world over finally allow GM to put itself out of our collective misery ( as well as get their grubby hands the heck off our tax dollars ) ..

    …call it a day … and let the remaining manufactures pick up the slack ?

    • TJ Martin
      Mar 27, 2018 at 4:16 pm

      … or to paraphrase the bard ( Bob Dylan )

      ‘ How many times must we bail GM out

      Before we can call it a day ? ‘

    • Mar 27, 2018 at 4:38 pm

      Buick’s made-in China models are doing really well in China, for some reason. One of the top brands. So the brand is going to stick around, if not in the US.

      GM is one of the largest automakers in the world by vehicle sales volume. Not going to “put itself out of our collective misery,” as you say so elegantly, anytime soon.

      • WES
        Mar 27, 2018 at 6:05 pm

        The Buick brand was kept by GM because the Chinese remember the Buick name from the pre-war2 years. The wealthy Chinese in those days drove Buicks! Buick symbolizes success in China! That is one reason GM has done reasonable well in China.

      • Alex
        Mar 27, 2018 at 6:31 pm

        GM is essentially a Chinese company now if you look at where the assets are located.

    • Marc D.
      Mar 28, 2018 at 10:10 am

      Holden is alive and well as a brand in Australia. They just don’t make any cars there anymore.

      As for GM, they’re still doing pretty well, thanks to trucks, SUVs and China. They made $12.8 billion in profits last year.

  15. Michael K.
    Mar 27, 2018 at 8:13 pm

    Apparently the U.S. market for mini-cars isn’t doing so well. This might help explain the collapse in sales for these Korean made GM products.

    http://carsalesbase.com/category/car-sales-us/car-sales-segments-us/minicar-segment-us/

  16. chris Hauser
    Mar 30, 2018 at 5:25 pm

    i bought gm at 20, and now regret selling gm at 25 some few years ago after thinking it wasn’t paying a dividend anytime soon.

    i like gm, but they are a big dopey company that treats everybody they deal with like chit. sounds like a buy to me.

Comments are closed.