GM Korea had an optimistic start to the year. The Detroit automaker’s arm in the world’s 10th-largest car marketgleefully predicted in February that 2017 would be a record year for sales. They aimed to capture a 10% market share of Korea’s auto market, selling 14,000 more vehicles than in 2016.
Instead, sales figures for October indicate a 54% drop from the previous year. Sales are down this year overall by 24%. The situation is so dire that community leaders, fearing job losses of up to 16,000, have formed coalitions like the “Citizens Movement for Purchasing Chevrolet” and have organized guerilla advertising campaigns to encourage folks to buy GM Korea products.
Thanks to the slump, rumors now abound that GM will exit South Korea altogether. The appointment by GM Korea of a so-called “restructuring specialist,” falling sales and the selling off of other major global subsidiaries are all pushing insiders to speculate that GM’s Korean subsidiary will soon go kaput.
This possible exit isn’t an isolated event among American automakers. Across the board, they’re increasingly focused on China and the United States, the world’s two-largest auto markets.
All in on China
GM has slashed its global presence this year after a slew of failed attempts to enter growing markets. Though India is set to become the world’s third-largest auto market soon, GM announced in May that it will stop manufacturing cars for domestic consumption there. It pulled in less than 1% of sales in India this year despite a 20-year presence. GM will also stop selling in South Africa after five years of falling sales.
General Motors sold its European subsidiary Opel/Vauxhall to Groupe PSA, a Paris-based automaker, in March. It previously sold Chevrolet-branded vehicles in Europe before phasing them out in 2013.
Ford Motor Co. has a smaller global presence than GM, but it’s faced similar pressures in some markets. Ford has had 16 consecutive quarters of loss in South American markets, and experts say they may pull out. On the other hand, Europeans are apparently rabid for Ford crossovers and SUVs; those vehicles sales were up 28.5% last month. Ford is accordingly investing $885 million in a Spanish plant to produce more SUVs.
Across the board, though, American automakers are most eager to break into the Chinese market. They’re having some considerable successes, too. Sales of Fiat Chrysler’s Jeep, through a joint venture with a local Chinese firm, tripled in 2016.
While GM clearly struggled in India, South Africa and Europe, it has actually had consecutive record-breaking sales the past three years. China is largely to thank here; GM sold 3.9 million cars there last year, and China has been GM’s top market for five years.
Finally, the interest in selling to China is clearest in the automakers’ push to develop electric cars. General Motors is selling a tiny $5,300 electric car in China, and Ford announced a $765 million joint venture this month to produce electric cars with a local Chinese firm.
Analysts disagree on if GM Korea will shut down
The closure of GM Korea isn’t simply due to a shaky domestic market. Indeed, GM’s four factories in South Korea have exported more than 1 million cars for 120 countries. That massive production for a global market appears to be integral to GM Korea’s downfall. As GM scales back globally, GM Korea’s internationally-focused factories may become superfluous.
After GM sold its European subsidiary Opel/Vauxhall to French automaker PSA, PSA announced that it would produce GM vehicles in Europe rather than Korea, as GM had done. This came as another blow to the beleaguered Korean subsidiary. At 130,000 vehicles, Opel vehicles accounted for 22% of GM Korea’s total sales volume last year, according to local outlet Business Korea.
Haeho Park, a spokesperson for GM Korea, wrote in an email that he had no comment concerning the Opel pullout “as the announcement didn’t include any specific plan of vehicle supply from Korea. We are focused on turning around our business and it is our hope to develop a sustainable future for GM Korea.”
Combined with falling domestic sales, some analysts are certain that the Opel pullout means GM will shutter its Korean operations. “GM Korea’s factory operation rate will inevitably decline and the company will end up facing pressure to downsize,” one expert told The Chosun Ilbo on Nov. 14.
“We believe that GM is highly likely to withdraw from the South Korean market. GM Korea is suffering from big losses for the last few years, losing its market share to imported brands,” another unnamed analyst told the Nikkei Asian Review in Sept. “There is no reason that the company keeps its business here.”
Other experts say GM might retain its Korean operations due to the research and production infrastructure already in place there. “It would mean that GM would lose a strong R&D center for compact cars,” wrote Seoul National University professor Wujin Chu in an email interview. “Overall, I feel GM’s exit is a lose-lose situation for both parties.”
Jaewon An, a research fellow at the Labor Research Center of the Korean Metal Workers’ Union, said in an interview that he believes GM won’t stop production altogether, but will reduce its level of output.
Regardless, locals are frustrated and scared by these rumors. An estimated 300,000 jobs are tied in GM Korea’s fate. “If GM were to suddenly stop production here, there would be a big sense of betrayal,” An said.