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GM Accepted S. Korean Government’s Principles Applied to GM Korea
Negotiations Starting to Set In
GM Accepted S. Korean Government’s Principles Applied to GM Korea
  • By Jung Min-hee
  • February 23, 2018, 00:30
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GM reportedly accepted three principles proposed by the Korean government to normalize the GM Korea.
GM reportedly accepted three principles proposed by the Korean government to normalize the GM Korea.


Negotiations have started between the South Korean government and GM over the future of GM Korea. GM is calling for a debt-equity swap, a paid-in capital increase, and so on while threatening to shut down GM Korea’s plants. The government, in response, is adhering to three principles, including GM’s responsible role as the largest shareholder, and GM accepted them saying it is ‘reasonable.’ A bumpy road is, however, ahead with the two sides having starkly different opinions.

Three Principles for Survival of GM Korea

The South Korean government met with GM International President Barry Engle in Sejong City on February 22 to discuss how to deal with the business difficulties of GM Korea. That day, Deputy Prime Minister Kim Dong-yeon held a press conference and presented the three principles including business recovery for sustainable growth and sharing of the pain by every interested party such as shareholders, creditors and union members. The Deputy Prime Minister also said that due diligence is a prerequisite for the government to determine its stance.

GM made reportedly no official request at the meeting. However, its requests are likely to include the government’s financial support for GM Korea’s US$580 million loan maturing this month, the Korea Development Bank’s participation in the debt-equity swap, financial support for a new investment of US$2.8 billion, and designation of GM Korea’s place of business as a foreign investment zone. The government said that any such request should be made in an official way.

Bumpy Road Ahead

The KDB and GM are likely to clash again over collateralization. GM Korea holds a board meeting on February 23 to discuss the opening of an extraordinary shareholders’ meeting for extending the maturity of its borrowings from the GM headquarters and putting up the Bupyeong Plant as collateral for the loan.

Non-executive directors of GM Korea recommended by the KDB already decided to go against the collateralization. The company’s board of directors has 10 members and three of them are those recommended by the bank and, as such, the collateralization is likely to pass the meeting. The KDB is likely to stand on the same side as the three non-executive directors.

With business conditions deteriorating, GM Korea borrowed three trillion won (US$2.7 billion) from the HQ and GM subsidiaries. At least 1.7 trillion won (US$1.5 billion) matures this year. Earlier, the HQ said that it would carry out the debt-equity swap on the loan so that GM Korea can be restored. “GM is calling for the government to provide financial support for the loan and tax incentives together while the government’s part in the debt-equity swap is limited to 500 billion won (US$450 million) equivalent to the KDB’s shareholding,” said an industry insider, adding, “Besides, GM is intending to wait only until the new model production assignment scheduled for early next month whereas the government is going to make any promise only after GM Korea is given new models.”

Withdrawal of GM Has Been Predictable

According to some experts, withdrawal of GM from the South Korean market has been predictable for a while in view of the HQ’s recent downsizing tendency.

Back in the 2000s, GM was busy expanding its business around the world from its manufacturing bases located in the United States, Japan and South Korea. Since 2011, however, most of its profit has been derived from North America and China and the company has left non-profitable markets one after another without looking back. This tendency has become even more conspicuous since CEO Mary Barra’s announcement in 2014. She said at that time that the number of GM’s global production platforms would be reduced from 26 to four by 2025 so that billions of dollars can be saved.

Since then, GM has withdrawn or almost withdrawn from India, Russia, Western Europe, East Asia, and so on. This move has been particularly conspicuous in Asia excluding China. The Australian government had provided approximately two trillion won (US$1.8 billion) for GM for 12 years, but GM left the Australian market last year immediately after the government stopped the funding.

Between 2009 and 2014, GM sold four Opel and Vauxhall plants in Germany and restructured its manufacturing plants in Britain and Belgium. At that time, the German government promised a loan of 4.5 billion euros and tried to sell the facilities to Canada. Nonetheless, GM delayed the process by demanding additional government support and then stirred controversy in late 2009 by notifying its own restructuring plan all of a sudden.