Deficit Operation
According to industry sources on April 10, GM Korea reported 594.4 billion won (US$515.30 million) in operating losses and 986.8 billion won (US$855.48 million) in net losses last year. It is the worst-ever performance since its establishment in 2002.
Industry watchers think that it is largely due to 186.9 billion won (US$162.03 million) of the equity method loss caused by its decision to shut its local factory following the withdrawal of the Chevrolet brand from Russia. GM Korea halted sales of the Chevrolet products in Russia last year.
Last year’s poor performance is also attributed to the fact that the automaker had sold its mid-size sedan Cruze with a 1.8-liter engine for exaggerated fuel economy claims in the domestic market for five years. As GM Korea decided to pay Cruze owners up to 430,000 won (US$373) per person to cover the difference between the stated fuel economy and the actual one, the total amount of compensation reached as high as 37 billion won (US$32.08 million) last year.
Moreover, higher labor costs despite the decrease in car sales also added to its worst-ever performance. The automaker shipped a total of 621,872 units at home and abroad last year, down 1.4 percent from the previous year. However, its labor union has strongly protested the company’s decision to continue importing all units of its full-size sedan Impala from the United States for sales in Korea despite strong sales at home.
GM Korea is looking for various ways to improve its financial state. The automaker has decided to organize a special task force team with staffs across the company, including labor union and management, in a bid to prepare measures to revitalize sales in the local market. Starting in January, it has introduced a direct sales system that guides individual dealerships to sign direct contracts with the automaker unlike in the past when they were in touch with regional dealers. This change has simplified the overall retail structure of GM Korea and is expected to cut tens of billions of won of annual costs.