Gunsan Chevrolet Cruze assembly (file photo)

Gunsan Chevrolet Cruze assembly (file photo)

GM Korea Company (GM Korea) said it would end production and close its Gunsan plant by the end of May 2018.

"The Gunsan facility has been increasingly underutilised, running at about 20% of capacity over the past three years, making continued operations unsustainable," the automaker said in a statement.

Gunsan includes an engine unit with capacity for 200,000 and a 260,000-unit car assembly plant curently making Chevrolet Cruze/Cruze Classic/Cavalier models.

The move will still leave GMK with a substantial manufacturing presence in South Korea. Its main Bupyeong complex houses a 440,000 capacity car assembly plant producing the Buick Encore and Chevrolet's Aveo/Sonic, Captiva and Malibu. Nearby components factories can make 300,000 manual transmissions and 570,000 engines a year.

The Changwon car factory near Busan has capacity for 210,000 units, according to just-auto's PLDB database. The factory produces Chevrolet Spark/Beat, Beat Activ & Beat Essentia models plus the Chevrolet Spark and Holden Barina.

Separate units can make 300,000 dual clutch transmissions, 500,000 manual gearboxes and 500,000 engines a year.

A plant in Boryeong can make 600,000 automatic transmissions a year.

"This announcement occurs after a careful review of the company's operations, which have sustained significant losses for the past several years," the statement said.

The move had been widely expected after GM International shifted former India chief Kaher Kazem to president and CEO of GM Korea following his restructuring of GM India where he ended local Chevrolet sales and switched factory output to export only. GM also ended South African operations last year, selling out to Isuzu.

Last October, South Korean unions were reported to be unsure of Kazem's intent, despite assurances GM remained committed to Korea, albeit with cost cuts on the table.

"This is a necessary but difficult first step in our efforts to restructure our operations in South Korea. We recognise the contribution and support of our employees, the wider Gunsan and Jeonbuk communities and government leaders, particularly through the most recent difficult period," said Kazem in the statement. "We are committed to supporting all of our affected employees through this transition."

GM said it had been "aggressively addressing under performing businesses globally, and is now focused on finding a solution for its South Korean operations".

The company has proposed to its labour 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 performance of our operations in South Korea needs to be urgently addressed by GM Korea and its key stakeholders. As we are at a critical juncture of needing to make product allocation decisions, the ongoing discussions must demonstrate significant progress by the end of February, when GM will make important decisions on next steps," said Barry Engle, GM executive vice president and president of GM International.

GM expects to book charges of up to US$850m, including approximately $475m of non-cash asset impairments and up to $375m of primarily employee-related cash expenses, most by the end of the second quarter of 2018. They'll be excluded from the company's EBIT-adjusted and EPS-diluted-adjusted results.

Based in Incheon, GM Korea claims to have made significant contributions to the Korean economy and automotive industry since taking over the former Daewoo operations 16 years ago, producing 10m vehicles since its establishment in 2002. The Korean operation supplies a substantial number of KD kits for assembly in other countries. The automaker says it supports around 200,000 direct and indirect jobs in Korea.

According to just-auto's Asia analyst, GM Korea's global sales fell 16.2% year on year to 45,466 units in December from 54,281 units a year earlier, reflecting sharply lower domestic and overseas sales. Full year sales of built-up vehicles were also down by over 12% at 524,547 units compared with 597,165 units in 2016. The data did not include KD kit exports.

Domestic sales continued to plunge in December, by more than 35% to 11,852 units from 18,313 units a year earlier, with a lack of new products putting the brand under pressure from rising competition from Hyundai and Kia. Full-year domestic sales were almost 27% lower at 132,377 units from 180,275 units previously. CBU exports fell by 6.5% to 33,614 units in December from with 35,968 a year earlier and were down by 5.9% at 392,146 in 2017 from 416,890 units in 2016.