There is a heated discussion in the South Korea government over whether the government needs to support GM Korea to help normalize the company. This is basically due to questions that how much the GM headquarters are truly willing to revive GM Korea.
An official familiar with the negotiations with GM said on Feb. 27, “It is true that there are diverse opinions even in the government that whether it should help GM Korea to normalize its business. In particular, there is a consensus that the government needs to decide on whether to support GM Korea or not after finding out how serious the GM headquarters wants to normalize its Korean affiliate.
The controversy is based on doubts that GM Korea might eventually leave the Korean market after collecting support money from the Korean government. GM sparred with the governments in Sweden, Germany and Australia for years over the shutdown of its plants and government supports and withdrew from the markets in the end. So, many market watchers see GM’s announcement to withdraw from South Korea in the same manner.
GM proposed a package support plan worth as much as 1.6 trillion to 1.7 trillion won (US$1.49 billion to 1.59 billion), including capital increase, financial support and tax benefits. The proposal means maintenance costs for 156,000 workers from GM Korea and its partner firms.
GM Korea, which continues to suffer a huge loss since 2014, completely fell into a state of capital impairment as of the end of the third quarter last year. The company posted 10.7 trillion won (US$9.98 billion) in sales last year but recorded an operating loss of 800 billion won (US$746.27 million) and a net loss of 900 billion won (US$839.55 million).
Issues over Fairness with Other Industries and Companies
The government is also concerned about fairness. When the government supports GM Korea, it will be against fairness with other restructuring industries, such as shipbuilding and shipping. In addition, there are issues over other domestic automakers suffering relative damages.
Considering the fact, there are an unfavorable public opinion over the support to normalize GM Korea. According to survey of 500 adult males and females conducted by public opinion poll Real Meter at the request of tbs on the 21st, only 6.4 percent of respondents said “The government needs to support without any strings attached in order to prevent a large-scale unemployment.”
Also, 29.8 percent of respondents said, “The government should not put taxpayer money in a foreign company,” while 55.5 percent said, “The government should support financial aid only when GM proposes a reasonable management normalization plan.”
GM’s Request to Designate Factory Sites as Special Foreign Investment Zones
Meanwhile, GM Korea asked for designating its factory sites as special foreign investment zones. In this regard, the Ministry of Trade, Industry and Energy (MOTIE) said on Feb. 26 that it all depends on GM’s new investment plans, including production of new cars.
During a press meeting at the Government Complex Sejong, an official from the MOTIE said, “We are still waiting for GM’s new investment plans, including production of new cars. The most important things are the models and the characters of new cars and they are required to be manufactured in South Korea for at least five years.”
The condition of “a minimum of five years” is not a confirmed government policy. In fact, the MOTIE is seeking to establish the foundation that GM continues to operate its factories in South Korea for a medium and long term through the negotiations. The official mentioned a period of five years because the average period of new cars’ development and sales is five years.