General Motors Co (GM) has proposed investing US$2.8 billion into its struggling South Korean operations over the next 10 years and has asked Seoul to provide funds for the investment, a South Korean government official said yesterday.
The plan comes as the Detroit automaker and the South Korean government discuss restructuring options at lossmaking GM Korea, one of the US company’s largest offshore operations.
Last week, GM announced it would shut down a factory in Gunsan, southwest of Seoul, and said it was mulling the fate of its three remaining plants in South Korea.
Photo: EPA
The proposal is on top of a more than US$2.2 billion debt-for-equity swap GM is offering to get financial support and tax benefits from Seoul.
The official with direct knowledge of the matter said GM had asked South Korea to inject funds into GM Korea through state-run Korea Development Bank (KDB), which holds a 17 percent stake in the unit. On that basis, KDB would provide about US$476 million in investment.
However, the official said a close look into GM’s proposal was needed to determine whether the investment plan was sufficient to rescue the unit, which directly employs about 16,000 workers.
South Korean Minister of Trade, Industry and Energy Paik Un-gyu also told the legislature that the government had asked for an audit into GM’s “opaque” management in the country.
“By opaque, we mean the high rate of profits to raw material costs, interest payments regarding loans and unfair financial support made to GM’s headquarters,” Paik said.
Paik said the government needed reassurance from GM on its long-term commitment in the nation before it would commit funds.
GM Korea did not immediately respond to requests for comment.
GM’s decision to close its Gunsan plant was the latest in a series of steps it has made to put profitability and innovation ahead of sales and volume.
GM has since 2015 exited unprofitable markets, including Europe, South Africa and Russia.
It laid out a plan to invest about 3 trillion won (US$2.8 billion) in South Korea and said that KDB, the second-biggest shareholder, should provide about one-sixth of the total, the head of the company’s South Korean union said, citing a plan the company had told union members.
A South Korean lawmaker earlier confirmed that GM had put forward a proposal, including the investment plan and the debt-to-equity swap.
In return, GM requested South Korea take part in financing the investment and raising capital, according to a statement by Jung You-sub, the lawmaker from Bupyeong, where GM runs its biggest factory in South Korea.
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