GM Korea Collapsing
A high-ranking South Korean government official said on February 19 that the ongoing issues regarding GM Korea cannot be resolved overnight and the government cannot provide any support for GM Korea without detailed information and data on the current state of its business.
The Korea Development Bank (KDB) has yet to initiate its due diligence process on GM Korea as the KDB and the General Motors headquarters have different opinions on its content and scope. GM International President Barry Engle is scheduled to meet with South Korean government officials in Seoul on February 20 and the meeting is likely to become the starting point of negotiations. Any agreement between the two sides is likely to take months given that the due diligence process will take at least a couple of months.
At present, the HQ is urging the KDB to pay 500 billion won to 700 billion won for an increase in GM Korea’s capital. Although the KDB is capable of doing so, what matters is who will make the call and take the responsibility. Participation in the capital increase without due diligence can lead to severe repercussions.
GM Korea, in the meantime, said that neither government support nor investment from the KDB is a prerequisite for GM’s new model distribution scheduled for next month and what matters is how much it can reduce its labor costs. It went on to say that its wage negotiations for this year need to be resumed as soon as possible for at least some tangible results. Unionized GM Korea workers withdrew from the negotiating table after the HQ decided to shut down GM Korea’s plant located in Gunsan. GM Korea’s annual labor costs can be reduced by approximately 200 billion won by the shutdown of the plant. However, the HQ is calling for an additional cut of 300 billion won or so.
In the meantime, GM Korea has taken a direct hit by the announcement of the shutdown. An increasing number of consumers are canceling their contracts or opting for the other automakers.
Under the circumstances, concerns are rising over the possibility of GM Korea’s collapse before government support. The company’s sales have declined since last year, when rumors began to circulate about GM’s withdrawal from the South Korean market. Last month, GM Korea sold 7,844 cars, down more than 30% from a year ago. Besides, more and more local Chevrolet dealers are preparing to leave their company.