Escalating Distrust
In February of 2013, GM Korea announced its business plan titled 'GMK 20XX.' The plan included a rosy blueprint for GM in Korea. At the time, "We will produce six global models including electric vehicles and invest eight trillion won in Korea for five years in order to produce them,” said Sergio Rocha, then president of GM Korea.
Now, five years later, the allocation of three new models including the Malibu and the Trax is the only thing that was realized among what GM planned in GMK 20XX. There is no production of future cars such as electric cars, and it is unclear whether 8 trillion won was really invested.
For this reason, many people expressed doubts when GM announced plans for US$2.8 billion new investment in the next ten years last month. They were concerned that the company would build up expectations only again and finally break its promises. To avoid being deceived twice, the Korean government and the GM labor union asked GM to disclose details of the US$2.8 billion investment and the two new models that will be newly allocated.
GM had put off making public the investment plan and on March 13, submitted the investment plan to Incheon City and South Gyeongsang Province along with application forms for the designation of its plants as foreign investment zones. The new investment amount stated in the investment plan is US$1.6 billion for 10 years, a big difference from US$2.8 billion announced earlier. This is why there has been concern that GM will dazzle GM Korea workers and the Korean government by exaggerating its investment plan once again.
In particular, the Korean government suspects thatUS$ 2.8 billion in the new investment plan includes government grants and other operating funds to be given to GM Korea through the Korea Development Bank. “US$1.6 billion is investment in Bupyeong and Changwon Factories,” said a representative of GM in reference to the matter. “The remaining US$ 1.2 billion will be comprised of financial support from the Korea Development Bank and expenses for the development of parts for new models by partners in areas except for Bupyeong and Changwon and will not include expenses such as operation funds.”
"Since there may be an imaginary number in what GM called direct investment, we will thoroughly verify the investment amount in the future and make sure there is no problem in the future," a government official said.
There are other problems beside the new investment amount. The investment proposal that GM submitted to the local governments is primarily intended to make GM Korea factories designated as foreign investment zones. However, there are many indications that GM's investment plan does not meet legal requirements to make GM Korea factories designated as foreign investment zones. In order to make them designated as foreign investment zones, it is necessary to increase production facilities. GM claims that the replacement of more than 70% of a facility equals facility expansion. GM is also sticking to its position to reject the government's demand for additional production and the creation of more jobs.
If GM Korea’s Bupyeong and Changwon factories are designated as foreign investment areas, they will be able to receive huge benefits such as the 100% exemption of corporation tax and income tax for five years and a 75% to 100% reduction of rents.
The Korean government is feeling mounting concern as GM's new investment plan was found far from meeting its expectation. GM is saying that if the Korean government does not make a decision to support GM Korea by April 20, GM Korea will have no choice but to go bankrupt. If the Korean government gives support to GM Korea while knowing that GM’s investment is insufficient, the Korean government will face criticism. Otherwise, it is feared that GM Korea will go under, giving rise to an employment crisis.