Ailing automaker GM Korea Co. should raise its capacity utilization, cut fixed costs and receive a new cash injection of around 1 trillion won to get back on its feet, a report said Thursday.
The report comes as the local unit of the US auto giant struggles to stay afloat amid snowballing deficits. GM Korea posted a cumulative loss of around 3 trillion won ($2.8 billion) from 2014-17, with its equity capital eroded completely.
Citing low productivity, GM announced in mid-February that it would shutter its plant in Gunsan on the west coast by May and decide the future of the remaining two plants later.
According to the report by the Woori Finance Research Institute, GM Korea should first remove excess capacity and jack up its operating rate by securing the production of new GM models in order to return to normal.
(Yonhap)
Currently, GM Korea has an annual capacity of 910,000 vehicles. But GM Korea's output came to only 520,000 units last year, with its production likely to see a drop of an additional 170,000 vehicles after 2020.
Even if GM Korea were assigned the production of a new model that could sell more than 100,000 units, its optimal capacity is estimated at 600,000 units per year.
The report also advised GM Korea to reduce its labor and other fixed costs by up to 900 billion won to turn around its abysmal balance sheet. As of 2016, payroll costs accounted for 12 percent of its sales.
In addition, GM should carry out a debt-equity swap of around 3 trillion won for its South Korean unit and pump in an additional 1 trillion won for its restructuring, the report said.
"GM Korea will be able to get back on track only if GM has the will to revive the troubled unit and inject fresh cash, backed by the labor union," Kim Soo-jin, a senior researcher at the institute, said.
GM's surprise announcement has drawn flak from the local community in Gunsan, which depends heavily on GM Korea for employment. It has also sparked speculation that GM might exit South Korea altogether.
GM Korea has requested financial support from the government, saying it will decide its future course of action based on the level of assistance and cooperation from its workers. Seoul has yet to unveil its stance on the sticky issue. (Yonhap)