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GM Proposes $2.8 Billion, 10-Year Investment in South Korea: Government Official

South Korea was for years a low-cost export hub for GM, producing close to a fifth of its global output at its peak.


Updated:February 21, 2018, 12:03 PM IST
GM Proposes $2.8 Billion, 10-Year Investment in South Korea: Government Official
A logo of General Motors is pictured at its plant in Silao, in Guanajuato state, Mexico, November 9, 2017. Picture taken November 9, 2017. (Photo: Reuters)
General Motors has proposed investing $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.

The plan comes as the Detroit carmaker and the South Korean government discuss restructuring options at loss-making GM Korea, one of GM's largest offshore operations.

Last week, the U.S. automaker 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.

The proposal is on top of a more than $2.2 billion debt-for-equity swaps 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 around $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 some 16,000 workers.

South Korea's trade minister also told parliament the government has 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," said Paik Un-gyu.

Paik said the South Korean government needed reassurance from GM on its long-term commitment in the country before it would commit funds.

GM Korea did not immediately respond to requests for comment.


GM's decision to close it Gunsan plant was the latest in a series of steps it has made to put profitability and innovation ahead of sales and volume.

Since 2015, GM has exited unprofitable markets including Europe, South Africa and Russia.

GM laid out a plan to invest around 3 trillion won in South Korea and said KDB, the second biggest shareholder, shouone-sixth about one sixth of the total, the head of the company's Korean union told Reuters, citing a plan the company had briefed union members on.

A South Korean lawmaker earlier confirmed 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.

On Tuesday, Barry Engle, head of GM's international operations, met with a government-appointed task force in Bupyeong and told reporters the company wanted to stay in South Korea.

Engle has asked for a meeting on Thursday with the trade minister, Paik told lawmakers.

KDB has said the automaker has not shared sufficient information about its finances or the cause of its mounting losses, according to officials from the bank and government officials.

South Korea was for years a low-cost export hub for GM, producing close to a fifth of its global output at its peak.

But the automaker's decision to exit other unprofitable markets have exacerbated problems for GM Korea, which used to build many of the Chevrolet models GM once offered in Europe.

GM Korea posted a total of 1.9 trillion won in net losses between 2014 and 2016.

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| Edited by: Manav Sinha
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