Consumer Discretionary / Industrials

Henry Kwon

Equity Bottom-Up

<p>In the wake of yet another round of media speculation that GM may exit from Korea, we looked at some numbers behind GM Korea and made a few observations.  Here is a summary of our findings and conclusions:</p><ol><li><div class="content-highlight">GM Korea serves as both a production and core R&amp;D center, very similar to the role historically played by GM Holden in Australia, whose product development and local distribution infrastructures have been retained by GM while shedding its role as a manufacturing center slowly over the past decade.  Since Korea sits at the center of GM's EV development as the birthplace of the Bolt, it is likely to retain this role in our view.</div></li><li><div class="content-highlight">GM Korea's financial woes come from two sources based on our observations: mismatch between products produced and local wages for direct laborers, and under-spending on local marketing and distribution.  70% of total production and 98% of total unit exports are in the A-C platform which is unrealistic to achieve sustainable profitability given Korea's wage levels.  Financially speaking, this suggests that GM Korea's Kunsan plant must find larger, higher ASP products to produce, or shut down.</div></li><li><div class="content-highlight">Any decision involving what happens with GM Korea will affect about 10% of GM's global unit production.  Hence, it cannot be a decision that is made hastily.  We believe closing the Kunsan plant makes financial sense involving only about 2,000 headcount at this point, but complete exit is unlikely to be a viable option on the table in Detroit at this point.  GM Holden's wind down may be the most realistic scenario investors should have as base case in our view.</div></li></ol><p>While we believe it is unlikely for GM to exit Korea altogether at this point, we do believe it to be a realistic scenario for Detroit to consider shutting down one of its 3 plants in Korea from a financial perspective.</p>

In the wake of yet another round of media speculation that GM may exit from Korea, we looked at some numbers behind GM Korea and made a few observations.  Here is a summary of our findings and conclusions:GM Korea serves as both a production and core R&amp;D center, very similar to the role historically played by GM Holden in Australia, whose product development and local distribution infrastructures have been retained by GM while shedding its role as a manufacturing center slowly over the past decade.  Since Korea sits at the center of GM's EV development as the birthplace of the Bolt, it is likely to retain this role in our view.GM Korea's financial woes come from two sources based on our observations: mismatch between products produced and local wages for direct laborers, and under-spending on local marketing and distribution.  70% of total production and 98% of total unit exports are in the A-C platform which is unrealistic to achieve sustainable profitability given Korea's wage levels.  Financially speaking, this suggests that GM Korea's Kunsan plant must find larger, higher ASP products to produce, or shut down.Any decision involving what happens with GM Korea will affect about 10% of GM's global unit production.  Hence, it cannot be a decision that is made hastily.  We believe closing the Kunsan plant makes financial sense involving only about 2,000 headcount at this point, but complete exit is unlikely to be a viable option on the table in Detroit at this point.  GM Holden's wind down may be the most realistic scenario investors should have as base case in our view.While we believe it is unlikely for GM to exit Korea altogether at this point, we do believe it to be a realistic scenario for Detroit to consider shutting down one of its 3 plants in Korea from a financial perspective.

GM: Will GM Korea Go the Way of GM Holden?

General Motors

GM: Will GM Korea Go the Way of GM Holden?