Dow Jones Newswires/Business Spectator
General Motors Company is preparing a concerted attack on its most troubled international operations that would entail big output cuts at factories in South Korea and likely an end to production in Australia, said people familiar with the auto maker’s plans.
GM intends to close its two Australian plants and separately slash production in South Korea by as much as 20 per cent by 2016, these people said. The moves come on top of a planned factory closing in Germany and last week’s decision to end Chevrolet sales in Europe in two years. A portion of the South Korean factory output would be used to feed the Australian market, the people said.
The largest US auto maker has determined that economic changes – including high wages and labour unrest in South Korea, and a strong currency in Australia and shift to imports there – have undercut its manufacturing competitiveness in the two countries.
Its executives are determined to attack unprofitable operations outside its North American home market that have dented profits during the past year. Its third-quarter pre-tax earnings in its international operations, including most of Asia, fell 61 per cent to $299 million due in part to problems in Australia. Without the unit’s earnings from China, the region would have lost more than $100 million.
Last week, GM chief executive Dan Akerson took a big step toward fixing its biggest international trouble spot by deciding largely to phase out Chevrolet sales in Europe and focus on its German Opel and British Vauxhall brands.
Akerson had signalled earlier this year that he was considering shifting some production out of South Korea because of its rising production costs, labour troubles and the risk of a confrontation with North Korea.
GM factories in South Korea have been the primary source of Chevrolets sold in Europe. The company has four production sites in the country and last year produced more than 2 million car-kits and vehicles, mostly for export.
“They are starting to act like a global organization and are breaking up the fiefdoms,” Morgan Stanley auto analyst Adam Jonas said. “There are new people in leadership jobs, the financial controls have been changed and there is more accountability to Detroit. Although I can’t comment on Australia or South Korea specifically, GM now has more options and with that they are weight the trade-off between importing or locally producing vehicles.”
Logistic costs are an issue for Akerson, who is under pressure to boost GM’s profits and share price as the auto maker prepares for the U.S. Treasury to sell its remaining stake in the company this month.
The government took a stake in GM as part of the company’s 2009 bankruptcy restructuring. The Treasury’s exit opens the door for private shareholders to press GM to use cash to start paying a dividend and boost share buybacks, analysts say.
In Australia, GM would follow rivals Ford Motor Company and Mitsubishi Motors in ending manufacturing operations. Mitsubishi exited the country in 2008 and Ford intends to close its two Australian plants in October 2016.
GM had hoped that a recent wage deal with workers at its Australian Holden unit and job cuts would allow it to sustain operations. But automotive industry lobbyists in Australia said they believed an end to production was “inevitable,” because the locally made Chevrolet Cruze compact didn’t generate enough profit and Australians were no longer buying its more profitable larger cars.
“They are going. They will not want to put more money in after the current model run winds up in 2016,” one senior industry representative said. A cabinet member denied though that the government was resigned to closure, saying “it is in no one’s interest for car making to end.”
Prime Minister Tony Abbott’s administration has indicated it would phase-down government support for the auto industry, which currently receives around $500 million a year. Auto and parts makers estimate the impact of manufacturing closures ultimately could cost the country $21.5 billion when all economic impacts are calculated.
Abbott recently called on GM in a radio interview to end the speculation and make clear what its intentions were, saying executives appeared to be in “two minds” about its future in Australia, as unions said they believed an announcement had been put off until after Christmas.
“At the moment they have everyone on tenterhooks,” Abbott said. “They are weighing their options and they owe it to the people of Australia to say what they are doing. They owe it to say whether they are staying or going.”