GM offers $2.8 billion investment in Korea over 10 years

By Yoon Ja-young

General Motors (GM) has proposed investing $2.8 billion in Korea over the next 10 years, but is pressuring the government to provide support for the ailing GM Korea.

In a meeting with Korean lawmakers Tuesday, GM International President Barry Engle said that the company will allocate two new car models - an SUV and crossover utility vehicle - to its assembly lines in Bupyeong and Changwon. GM has four plants in Korea, but it announced plans to shut down its underutilized Gunsan factory last week as part of global restructuring. Engle also said that it would make efforts to maintain an annual production from GM Korea at 500,000 vehicles.

GM proposed plans to fix its troubled Korean unit, but is pressuring the government to provide financial support. According to lawmakers who participated in the meeting, GM proposed a debt-to-equity conversion plan, which will turn GM Korea’s $2.7 billion loan from headquarters into equity. This will lessen the burden on GM Korea which has been paying a huge amount of interest.

“We stressed that things will not get any better for GM Korea unless GM solves the problem of the $2.7 billion intercompany loan since GM Korea is paying 200 billion won annually as interest,” Rep. Hong Young-pyo of the governing Democratic Party of Korea told reporters after the meeting. “GM showed its willingness to solve this through a debt-to-equity conversion,” he added.

However, GM is demanding that the state-run Korea Development Bank (KDB) also participate in the capital increase. KDB is the second largest shareholder of GM Korea, holding a 17.02 percent stake. GM also said it will inject $2.8 billion over the next 10 years for facility investment, but demanded that KDB also participate in this. If the KDB accepts the offer, it should put over 1 trillion won into GM Korea.

The U.S. carmaker also wants areas around its factories to be designated as foreign investment zones, so that it can get tax cuts and financial support. The Gunsan plant, however, is expected to still be shut down in May as scheduled. Engle said that GM would willingly sit for talks if there was any party interested in purchasing it.

Trade, Industry and Energy Minister Paik Un-gyu, however, said that GM Korea should improve transparency in management and come up with a long-term investment plan.

“We are examining if those suggestions (by GM) abide by laws and regulations,” Paik said at the National Assembly, Wednesday.

“However, I think a transparent and objective investigation should come first. GM Korea should improve transparency and come up with plans for better management,” he added.

When asked what he thinks was the fundamental problem of GM Korea, Paik cited a lack of transparency. GM has been facing criticism that it is extracting what it can from the Korean subsidiary, selling components at high prices while purchasing assembled products at low prices. It is also collecting around 5 percent interest on intercompany loans.

“There is a suspicion that GM has been hindering access to figures (related with management),” he said, when asked by lawmakers why the KDB wasn’t aware of the problems at GM Korea despite being the second largest shareholder.

In a recent meeting with the media, Paik said that the government is also preparing for the worst-case scenario, which refers to GM scrapping its business in Korea. This shows that the government will stick to the principle that GM should submit a normalization plan first if it wishes to get government support. The Australian government supported GM, but it deserted the country when this stopped.

Engle requested a meeting with the minister for today, but the minister declined due to a fixed schedule. Paik told the National Assembly he is trying to coordinate a time to meet with the GM executive.