The threat of Carmageddon for jobs.
It follows the playbook: It started on February 12, when General Motors announced the “first step” in the “necessary restructuring” of its GM Korea unit. It would “cease production” and shut 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.”
Here’s the verbalization of the shakedown:
The company has proposed to its key stakeholders — including its labor union, the South Korean Government and key GM Korea shareholders — a concrete plan to stay in the country and turn the business around that requires the full support of all parties. The proposal includes significant product-related investments in South Korea and would preserve thousands of jobs.
The Korean government, via its Korea Development Bank, already owns 17% of GM Korea. But that isn’t enough. Now it’s going to have to pull out its wallet again (GM’s main Chinese partner, SAIC Motor Corp, owns 6%. GM owns 77%).
GM Korea employs about 16,000 people. Many more jobs depend on the industries that support and supply GM Korea’s four manufacturing plants. Some of those secondary and tertiary jobs would be threatened. In total, the four GM Korea plants support about 200,000 jobs, GM says in the press release to make sure the government fully understands the magnitude of the threat.
But GM Korea has been losing money. Production has plunged 44% from 943,000 vehicles in 2007 (when it was still called GM Daewoo) to 524,000 vehicles in 2017. In 2017, GM exported 392,000 of these vehicles to other countries, including the US.
With this announcement, GM had the South Korean government’s attention. The extortion effort has been displayed in the media across the world. So the negotiations commenced and led all the way to the top of the government – in order to make the business profitable, GM President Dan Ammann told Reuters, adding, “Time is short and everyone must move with urgency.”
In other words, how much money would the Korean government be willing to pay directly via a cash infusion and indirectly via tax deals?
Now apparently a deal is being worked out, according to Reuters based on what “four sources with direct knowledge of the matter” had said who didn’t want to be named “due to the sensitivity of the subject” – because all this is carried out at all levels, including leaks to the media. Here are some elements of the deal that emerged today:
- GM wants $1 billion from the government to recapitalize GM Korea.
- GM wants its GM Korea sites designated as special foreign investment zones to make GM Korea eligible for tax breaks for seven years.
- In return, GM offered to convert $2.2 billion of troubled GM Korea’s debt into equity.
And this is wandering up the political pyramid.
Today, Barry Engle, GM executive VP and president of GM International, discussed the restructuring and aid package with a government task force headed by a ruling party lawmaker from Bupyeong, where GM Korea largest plant is located. The threat in GM’s announcement was that the fate of this plant would have to be decided “by the end of February.”
Engle told Reuters that he’s “encouraged by the discussions” and is “optimistic” that “an outcome” can be achieved that would keep GM in Korea. As Reuters puts it, “He declined to comment further on the discussions between GM and the South Korean government.”
But the government is talking, according to Reuters:
Kim Sung-tae, a South Korean lawmaker, said Engle had told lawmakers that GM Korea planned to produce two new models.
Kang Hoon-sik, a spokesperson for the ruling party, told reporters that Engle said that GM Korea would try to maintain production of around 500,000 vehicles a year.
Finance Minister Kim Dong-yeon told reporters today that the government would “closely consult with GM to normalize its management,” and that thorough due diligence on the company should come first before a decision is made on financial backing.
The presidential office of South Korea said today that it would designate Gunsan an employment “crisis zone.” This would allow the government to offer laid-off workers some financial support, such as cheap loans.
Officials at the Korea Development Bank (which already owns 17% of GM Korea) complained that GM Korea has not shared sufficient information about its finances or the cause of its losses.
A government official who didn’t want to be named told Reuters, “They have requested for help, and a thorough audit of the situation is among many preconditions before any public funds can be set aside.”
Unnamed government officials said today that financial support to GM Korea will depend on GM’s willingness to commit to new investment in the remaining operations.
An unnamed government official said that GM hasn’t filed an official application to get the GM Korea sites designated as foreign investment zones, but it was “testing waters” to check the possibility.
[Update Feb 21: Trade Minister Paik Un-gyu told lawmakers that the government has asked for an audit into GM’s “opaque” management in Korea, Reuters reported. “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,” said Paik Un-gyu, adding that taxpayers’ money would not be wasted in government efforts to deal with the GM issue.]GM wants to lower its costs in South Korea to get to “a viable cost structure,” as GM President Ammann put it. These cost reductions are going to be obtained from various “stakeholders,” including largely the Korean taxpayer.
GM is going to produce its vehicles somewhere. It’s just a matter of where it can do so at the lowest cost, including the greatest amount of subsidies. Over the years, GM has used this tactic to offshore much of its manufacturing operations from the US.
This is the same extortion principle that large corporations use with municipalities, states, provinces, and countries around the world, either to locate to those locations, or if they’re already there, to not close their shop. It’s a well-oiled machine that works – with taxpayers, who have no say whatsoever in this, always footing the bill.
How can the media be so gullible – and pliable? Read… What the Headlines about Tesla, Snap, and Twitter “Earnings” Should Have Said
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You are right. Same old, same old. The REAL issue is nobody wants to buy GM products. Not America, Not Europe, Now obviously Not Asia. GM cannot sell anything of quality, anywhere.
I live in a large retirement community. Almost no GM products. Some Ford products. No FCA products. Like everywhere else just a lot of Honda/Acura, Toyota/Lexus, Kia/Hyundai, VW/ Audi around here. Some Nissan as well.
Jack,
GM is the undisputed market-share leader in the US, with a share of 17.4%. It sold 3 million vehicles in the US in 2017, ahead of:
Ford 2.6 million
Toyota 2.4 million
FCA 2.1 million
Honda 1.6 million
etc.
Your retirement community — as nice as it may be — does not appear to represent a valid sample of the overall US population.
Here is some data for 2017:
https://wolfstreet.com/2018/01/03/us-auto-sales-fall-for-2nd-year-at-gm-ford-toyota-fca-hyundai-kia-bmw-and-others/
Lots of GM’s where I am. Sure, I’d buy Honda or Toyota or Ford before I’d buy GM myself, but lots of people here, including the guy I work for, seem to think GM’s crappy quality is A-OK.
I can attest to the crappy GM quality. Had two new GM rental cars in the past 3 months, a Suburban and a Yukon. Among a lot of other annoying issues, GM couldn’t get the programming for the automatic tailgate anyways near decent, resulting the thing flying open while we were driving down the road and our stuff falling out the back.
China buys GM cars! 4 million vehicles in 2017, more than the 3 million GM sold in the United States! China is GM’s largest market for its Cadillac brand!
http://media.gm.com/content/dam/Media/gmcom/investor/2018/feb/general-motors-2017-Q4-Earnings.pdf
My parents were big Oldmobile fans, with their comfy seats that felt like living room sofas and the driving characteristics of an aircraft carrier. They also had a Cadillac, which was an awful car and ended up giving away to one of my nieces. Now they have a Mercedes.
Here in Santa Clara, CA St. Claire Cadillac just declared bankruptcy after being in business since 1919. There’s a lot of money in this valley, but GM isn’t getting much of it.
The govt buys them.
Exactly, I’ve seen it happen here in Australia.
If you want Government funding, you had better lease the Government prescribed brand.
√
I should also add Not Australia either where they shut down their Holden, etc plants there.
But how may billions did they get out of the Government, before the Government finally refused to pay?
Philosophically speaking, the Marriage of Government (in the USA or anywhere) and mega-Corporations (often transnational) is bad for people, and also bad for freedom and democracy.
https://www.nationofchange.org/2015/05/26/government-and-corporate-america-a-marriage-made-in-hell/
We have lost our way and cannot see the bad of the path we are on.
Perhaps the coming generation of young people will correct the problems we boomers are leaving for them?
literally, the marriage of government and mega-corporations was first known as Corporatism. However, this word felt clumsy in the mouth so its originator leaned on Latin a bit and came up with the term Fascism, after the Latin word fascia, for connecting tissue. Another instance of the term is in the “fasces”, a bundle of sticks bound together to make them as strong as a stout timber, and this thing even appeared on the tails side of the US “Mercury” dime, and in the Lincoln memorial.
You were once part of the younger generation, you generation didn’t fix things, what makes you think this time it will be different?
Anytime you say “Is up to the younger generations to fix things” you are not only throwing the towel, you are setting it on fire.
Is not a younger generations problem, is a problem that affects a lot of people and so long as most people keep doing nothing.
Evil triumphs if good men do nothing. It has been a whole lot of “nothing” for decades when it comes to the abusive marriage between mega corps and government.
I say is time to start a divorce.
I did not mean to imply that I was IN FAVOR OF “Leaving problems for the next generation”.
Not at all.
The reality is that no governor, senator or presidential candidate that I have had the ability to choose for a vote, has said or meant to do anything even close to what is a necessary fix. Not once in my life, not even a close one.
THIS PROBLEM-SUITE OF OURS now requires a catastrophe to set a fix in motion.
I have always said — that for many problems — the seed for the fix is contained in the problem itself. If one only has the mind to see within.
If a 100 car train is going 100 M.P.H. straight towards another 100 car train, which is standing still on the tracks, JUST ONE MILE AHEAD – – – – then the solution to that problem is baked into the problem statement itself : A YUGE CRASH ! ! ! No other result is possible.
That is what we the people, and our leaders, have chosen. We have ignored the plain arithmetic of all of our problems — FOR DECADES — and now a crash is the only fix.
I hope the young people are up for the task, I sincerely believe they are.
I don’t think the USA is a country anymore, it’s a corporation.
Its a country being extorted from. By Globalised Vampire Corporate Dictators, mostly allied with china.
Corporate social welfare…apparently it’s OK, because the provision of jobs is a ‘social service’ (even seen described as ‘altruism’..!)
It’s only when welfare is given to the individual that it’s apparently a bad thing.
I understand why the Korean politicians don’t want to lose the jobs, but what I don’t understand is why the Korean politicians believe GM would do anything different in Korea than it did in the US. GM will cash the $1Billion check, get rid of the $2.2 Billion debt (at the cost of the other shareholders) and then 6 months later start moving production to China. And if new shares are issued and increase the total shares outstanding, Korea will own about the same percentage of the company as it does now.
I would think the $3.2 billion could be more usefully spent by the Koreans to look for replacements for what is clearly a declining enterprise. But you know politicians. I’ll bet GM has timed this so there is an election coming up soon.
It’s a bit of a complicated issue.
Generally speaking the Korean car industry has been on a declining slope for a few years now despite grandiose expansion plans into new markets and for massive excessive capacity to meet a demand which never materialized, all generously funded by Korean banks, starting from Korea Development Bank.
Korean carmakers in particular have seen their market share in the US plummet even during years of overall unnatural growth and remain marginal players at best in China.
The decline of the local car industry is a thorny political issue in Korea, and to this it must be added the country is still reverberating from the echoes of the scandals which engulfed President Park, daughter of the long-ruling military leader assassinated by the KCIA in what most likely was a botched coup. The connection is not lost on older Koreans.
On top it must be added Korea is struggling with another serious industrial issue: the massive overcapacity she built in the shipbuilding sector.
Again, demand failed to grow at the frankly impossible pace Korean shipbuilders expected and on top of this they face stiff competition not just from their old Japanese competitors but from new and aggressive Chinese concerns. Neither seem to have problems operating at a loss, at least for the moment, and appear to be more concerned with being outlets for local contractors (chiefly steel mills) than being remotely profitable.
Just like it happened with cars, this excessive capacity was funded by Korean banks which either forgot the lessons learned in the 90’s or were pressured by political factors into extending these jumbo loans.
That excessive capacity, and with it the loans backing it and the jobs it has generated, is a problem no politician wants to deal with. That’s why GM will get if not everything the board of directors want a big chunk of it.
ROKdid not DELIBERATLY build overcapacity in ship building and Auto Manufacture.
CHINA DID WITH THE INTENTION OF DELIBERATELY DESTROYING THE, JAPANESE, KOREAN, PHILIPPINE, THAI, MALAY, AUSTRALIAN AND AMERICAN INDUSTRIES.
There was already MASSIVE global overcapacity in those industries, and Metals.
Yet china after everybody else, DELIBERATLY built more capacity than everybody else put together.
Ther is global over capacity.
The fault lies with the people who put on MASSIVE UNNEEDED OVERCAPACITY LAST.
Not the People who had established industries BEFORE that unnessecary overcapacity was built.
There are too many Truck builders, steel mills, car builders, Globally.
AND CHINA IS STILL BUILDING MORE.
That is NOT Competition, that is STATE SPONSORED ECONOMIC WARFARE.
Yet you blame Korea, for having its shipbuilding, and auto industries, deliberately targeted, and destroyed, by china.
lot of people in china, needing jobs. keep ’em busy, and all that.
korea, ah, a different story. treadmill.
+10
Time for the S. Korean government to exercise the right of eminent domain and create a GSE/GOE S Korean car company. Should compensate GM the full assessed tax value of the plant…
Wolf. Question. What was GMs share of the US market in 2000, 2005, 2010, 2015?
Steadily downhill for the last 40 years or so. Remember when GM had better than 50% of the market? Remember when GMers work lapel pins with the number 30%? Remember when Wagoner etal went before Congress in 2011 or 12 when they had 18% of the market?
Now they have to sell their pickup trucks with huge discounts on the hood to move the metal. And their Chevy Volt? Bolt? their electric vehicle? Sold barely a thousand last month.
They are now only a finance company masquerading as a car company.
Love your website. Follow you all day long.
What, no Daewoo enthusiasts? Where’s Bobby Lee (Tank) when you need him?
I can’t speak for the newer GM vehicles but one of my Buicks is pushing 350k miles, the other one has 180k miles and my old chevy who knows, lost track 10~15 years ago but the odo has rolled over at least twice and still going…
Each of these has had their minor issues common with the model, easily taken care of.
A friend told me his Chevy Impala with the big six spun a cam lobe (apparently the 1st year they began pressing lobes onto the cam shaft).
South Korea is being “Borged” (Cheerfully misquoted from Star Trek The Next Generation and Star Trek Voyager.)
“We are the GM. Existence, as you know it, is over. We will add your tax breaks, no interest loans, and technological distinctiveness to our own. Your culture will adapt to service us. Resistance is futile.”
South Korea should learn from the mistakes of Detroit and tell them to leave and then see what happens. ; )
yes that’s what I was thinking. Let them sink, go bankrupt, take the facilities and give to Hyundai or Kia for a dollar. I am sure they can make good use of it and the employees.
GM is today effectively a chinese company.
So why would it not extort from ROK, at any opportunity.
GM pays more tax in china, that it does in the US .
GM Imports specifically manufactures Vehicles and Components in china, for the American market.
Cutting the whole NAFTA region out of its supply chain, when ever possible.
GM Is a Globalised Vampire Corporate, Allied with china, intending to suck America dry.
Yet Americans still support GM.
Then cry that they dont have enough GOOD job’s.
You cant fix STUPID.
You have some great points re: GM. Although your list could be expanded to include many companies masquerading as American corporations but are actually offshore entities.
Don’t understand you comment about GM being effectively Chinese. During its bankruptcy, GM was essentially given to the UAW pension fund.
GM (still) pays essentially no US income tax because the Obama administration made sure tax-loss-carry-forwards (usually washed away in bankruptcy) were retained by GM.
GM will use loss-carry-forwards to shield future US taxable earnings until 2018; obviously, this does not apply to Chinese taxes.
It sounds like GM might be having second thoughts about it’s Korea operations. If there is a sudden downturn, it’s always easier to shed excess capacity when it’s overseas. And the smaller cars produced in Korea can’t compete against the high margin vehicles that GM makes and sells in its home market.
GM is just doing what every good company does. Of course, it doesn’t always work… *cough* Ople *cough* Too bad Hyundai can’t just take over. As for our government supporting our corporations, literally, what else can you do.
This is what’s happening all around the world. Even though everyone pretends that the large corporations and governments are related, can anyone imagine:
France letting Airbus fail
Japan letting Toyota or Honda kick the bucket
China letting competition in vs Baidu/Alibaba/Tencent (I like the BAT acronym)
Indian not supporting Tata Consultancy
US not backing up Apple and Cisco
Just won’t happen
Anything GM touched will end up in bankruptcy or closure – not just Holden, but Vauxhall, Opel (sold to Peugeot last year), Daewoo. Before you say it, GM China is actually run by SAIC since 2009 when GM sold 1% of its 50-50 JV with SAIC for bailing out GM Daewoo (yes, GMDAT was already in deep trouble 9 years ago (the KRW is too strong or the USD is deliberately debased to screw up US corporates operating overseas). Trump shud be hoping GMDAT goes down and somehow some jobs flow back to the US. Some tweets soon?
When Renault and Nissan merged, the Japanese press nicknamed it “The Marriage of the Weaklings”, a reference to the chronic financial difficulties the two groups have faced all their lives.
Then how should we nickname the PSA-Opel deal?
Peugeot SA (PSA) is effectively a dead man walking: it has not merely received €7 billion in direct subsidies from the French government since 2012 with the EU remaining completely silent despite the nominal prohibition on “State aids”, but the French government is now the second largest shareholder (23%) and the Peugeot family (25%) is negotiating the sale of a further 5-10% which would turn PSA into another Renault. Again, the EU, especially its garrulous anti-trust committee, remains completely silent.
A company in such conditions as PSA should work on putting its own house of cards into order, not buying a complete basket case such as Opel/Vauxhall (same piles of junk, driving wheel on the different side). Given the weight the French government has in all decisions at PSA (remember the French banks such as BNP-Paribas financing PSA all have the government among their major shareholders) I have zero doubt the decision to saddle an already ailing company with an even more ailing company was either wholly political or a momentary madness on par with BMW’s purchase of Rover and Husqvarna (motorcycle division).
I have just updated the article with an interesting development today that may shed some light on how GM arrives at its earnings numbers:
Trade Minister Paik Un-gyu told lawmakers that the government has asked for an audit into GM’s “opaque” management in Korea, Reuters reported. “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,” said Paik Un-gyu, adding that taxpayers’ money would not be wasted in government efforts to deal with the GM issue.
“audit into GM’s “opaque” management in Korea, Reuters reported. “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,” ”
Objectivly. The Koreans know a lot about the fine points of these tactics, good to see them fighting GF the chinese vampire. Is there a tax evasion case in the making?
Assembling vehicles in Australia is not competitive globally whereas in Korea it is.
I have had kia products for many years, currently in a 2008 kia sportage purchased new {148,000 miles on it) which is abusively used and filled w building products….total repair costs other than tires, battery 600 plus dollars and still going strong, wife car accident totaled out her several months old kia, toyota that hit her between doors was scrunched back to the drivers compartment, kia had doors/frame kicked in about 4 inches, several steel beams surround the passenger compartment. Really, really safe. called kia and asked them to find an exct duplicate for her. I am patiently waiting for them to come out w small pickup truck. wonderful (but so far not necessary) 1000000 mile warrantee on new vehicles
One quote I never forgot about auto manufacturing costs was from a Toyota executive in 2011:
http://archive.fortune.com/2011/02/18/news/international/toyota-factory-japan-asia.fortune/index.htm
“60 percent of the cost of the car is the investment into the plant. 20 percent is the parts that go in the car,” says Toyota’s photogenic Executive Vice President Atsushi Niimi. He does not say what the remaining 20 percent are, presumably labor”
I remember this because it means the cost of labor is relatively small component of manufacturing cost, and suggests overseas outsourcing might be popular because foreign governments subsidize factory construction. Maybe GM Korea needs to replace factories and equipment, and its trying to lock in some massive state subsidy of this overhead to reduce future production costs?
Maybe 45 can get those jobs back in the US of A by imposing a few tariffs. Ah I love the smell of racketeering in the morning.