From Russia With Loss: Pullout Hits GM Korea Hard

Crippled by Russia’s termination of manufacturing activity, GM Korea reports a record 986 billion won ($861 million) loss in 2015.

In addition to the one-time writedown for the pullout from Russia last year, the automaker also blames the loss on weakening conditions in emerging markets, which have taken on greater importance since GM Korea stopped selling Chevrolets in Europe three years ago.

The automaker’s wholly-owned Chevrolet Europe subsidiary had lost money since its formation, although it was the conduit through which more than 80% of GM Korea’s vehicles were sold.

Abandoning Europe at the time was seen as an eventual financial benefit, but the move was negated by the cost of the Russian pullout.

GM Korea’s 2015 net loss was 2.8 times greater than the net loss of 353.5 billion won ($308 million) recorded in 2014. The 2015 operating loss of 594.4 billion won ($519 million) was four times greater than the operating loss recorded in 2014.

The company reported 2015 revenue of 11.9 trillion won ($10.4 billion) and global sales of 622,000 vehicles.

The poor earnings performance contrasted with GM Korea’s upbeat first-quarter sales results.

GM Korea reported global sales of 149,948 vehicles from January through March, up 3.2%. Of those vehicles, a high percentage were the diminutive, low-margin new-generation Spark.

The Spark sells domestically in the 10 million-15 million won range ($8,700-$13,000).

In March, Korean sales of 16,868 vehicles bolstered global sales so that they showed an increase of 3.4% with 56,144 units. However, exports were down 4.4% with 39,276 units sold.

Bar Set High for Malibu

Chevrolet is pinning its hopes of increased sales performance on continued robust demand for the all-new Spark and new Malibu launching next month.

The midsize Malibu sedan has its work cut out for it.

The current model sold just 786 units domestically in March, compared with 7,053 Hyundai Sonatas and 6,751 Renault Samsung SM6 models.

To a lesser degree, the new version of the Captiva CUV is expected to also boost GM Korea's domestic sales.

Despite its dismal 2015 earnings performance, GM Korea still targets a 20% domestic sales increase for 2016, aiming to sell 191,000 vehicles and take 10% of the market, up from the 2015 share of 8.6%.

GM Korea’s union has concerns about the low utilization rates at its two plants in Bupyeong and the plant in Gunsan. Output from all four plants should finish 2016 around 600,000 vehicles, the same as in 2015 and 2014.

This is a far cry from the 780,000 assemblies recorded in 2013 and the peak performance of 900,000 in 2007.

GM Korea’s union had hoped the automaker would bring production of the Impala fullsize sedan to Korea from Hamtramck, MI, to help boost output. But the company last week said it will continue to import the Impala from the GM plant in the U.S.

GM Korea does export high volumes of complete-knocked-down vehicle kits, which are not included in its sales reports.