Threat to Normal Management
According to industry sources, GM Korea recorded a net loss of hundreds of billions of won last year to make no profit at all for the third consecutive year. The net loss for last year is estimated at 300 billion won (US$260 million) to 400 billion won (US$348 million). Specific data is scheduled to be available late next month.
Its net loss for last year is attributable to a negative growth in exports, which account for 80% of its total sales, although the company sold lots of cars such as the All New Malibu in the South Korean market. Its major export markets like Latin America and emerging countries were hit by the global economic recession last year and the situation had a negative effect on its exports. This year, things are likely to get worse because of PSA Group’s acquisition of Opel. Production of models that have been manufactured and exported to Opel by GM Korea is discontinued after the acquisition.
In the meantime, GM Korea announced on March 15 that it exported 69,338 cars in January and February this year, down 5.2% from a year ago. The company’s annual exports increased 6.7% between 2010 and 2011 but have declined for six years in a row since then. The annual export volume dropped to approximately 400,000 in 2014 after the withdrawal of Chevrolet from Europe. The figure for this year is estimated to be less than that.
The export volume is likely to drop again in two years. This is because PSA Group is planning to discontinue the production of Mokka X in 2019 and Karl in 2021 in order to use Peugeot’s platform. Mokka X and Karl have been manufactured in and exported from GM Korea’s facilities located in Bupyeong and Changwon, South Korea. In 2016 alone, the volume amounted to 220,000 units or so. For reference, GM Korea sold a total of about 180,000 cars in South Korea during the same period.
The company’s losses have snowballed since 2014. Specifically, the amount was 333.1 billion won (US$289 million) in 2014 and 993 billion won (US$863 million) in 2015 and is estimated to have reached two trillion won (US$1.74 billion) last year. Under the circumstances, its plan for debt redemption is unlikely to go well.
At present, GM Korea has to repay 2.4 trillion won (US$2.1 billion) in total and its annual interest cost amounts to 120 billion won (US$104 million). The burden further increases in the event of an interest rate hike by the Federal Reserve. The automaker is planning to complete the redemption of the debt by 2020 by repaying 841.4 billion won this year and dealing with the rest in the following years. However, it seems that a change in plan is inevitable.
These days, GM Korea is concentrating on the South Korean market to break through the difficulties. It is aiming to achieve a stable growth in the near future by increasing its domestic market presence and diversifying its export destinations. “Overseas markets are rarely predictable due to a lot of global economic uncertainties but we can still have a grip on the domestic market,” GM Korea CEO James Kim recently mentioned.