ED Unacceptable aid for GM

Effectiveness of massive funding uncertain

The state-run Korea Development Bank (KDB) has decided to provide funds for GM Korea, but the decision is hard to understand in many ways. According to media reports, GM's U.S. headquarters will put in new funds of $3.6 billion (3.9 trillion won), and the KDB will supply $750 million (800 billion won).

We can hardly understand why the KDB, not the largest shareholder of the troubled carmaker, is injecting such a significant amount of money. Above all, it is far from certain if the infusion of such massive additional cash will even keep the company afloat for an extended period. GM Korea has already lost the confidence of local consumers with a recent decision to shut down its Gunsan plant.

Nor are the company's export prospects bright, given the two new vehicles GM has allocated to its Korean unit are SUVs, whose future sales are less than assured.

That explains why the KDB had asked GM to manufacture up-to-date electric or autonomous vehicles in Korea. However, the U.S. automaker turned down the request, revealing its skepticism about the Korean plants' competitiveness and marketability. GM has reportedly promised to maintain its Korean manufacturing base over the next decade or so, but industry watchers say they won't be able to stay afloat for more than five years as things stand now.

No less incomprehensible is the ways of providing new funds. GM will put in the entire amount of $3.6 billion in the form of a loan while the KDB will inject $750 million as a new investment. Who can understand why GM, which has an equity stake of 83 percent in GM Korea, will receive interest from the additional funding while the KDB will get nothing from its fresh investment if things go awry?

By all appearances, GM is dragging around the state-run bank because of political considerations, including the June 13 local elections. The KDB's bargaining leverage was weakened sharply by the possibility of losing 150,000 jobs, including those at its suppliers, if GM withdrew from the country.

The government must ask itself whether the injection of taxpayers' money into the failed company would benefit the Korean economy and its people in the long run.