A Long and Winding Road Ahead

Unionized GM Korea workers and civic organization members held a rally in Gwanghwamun, Seoul on April 12.
Unionized GM Korea workers and civic organization members held a rally in Gwanghwamun, Seoul on April 12.

GM Korea’s liquidity crisis is showing no signs of resolution. On April 12, the eighth round of wage negotiations between the company’s management and employees was canceled. Besides, designation of the company’s Bupyeong and Changwon Plants as foreign investment zones is becoming less and less likely.

The negotiation could not occur due to different opinions about CCTV installation. The management demanded CCTV installation and multiple exit doors in the interest of safety. Meanwhile, the employees demanded individual video recording devices prepared by both sides.


Foreign Investment Zone Designation Issue

On the same date, GM Korea asked the Ministry of Trade, Industry & Energy to designate the plants as foreign investment zones, submitting a plan for making an additional investment of at least US$30 million in each. However, the ministry said that the plan should include more about innovative technology such as self-driving technology and future cars, although it explained that foreign investment zone designation and investment in the new technology have nothing to do with each other. “We will carry out the designation process as soon as possible so that it does not hinder GM Korea’s restoration,” it mentioned, adding, “Still, we cannot give a clear answer yet with some uncertainties remaining.”


Some matters still remain even if the plants are designated as foreign investment zones. At present, the South Korean government is modifying its rules on foreign investment zone designation after the European Union called them into question. New rules are scheduled to become effective next year, but the designation related to GM Korea cannot but be subject to the current law. “Application of the current law will not be that problematic in that what the EU called into question is not foreign investment zone and free economic zone designation itself but discrimination in such zones,” the ministry explained.

Foreign investment zone designation is determined through submission application to a local government, a request to the ministry, feasibility studies by the ministry, and deliberation by the commission of the ministry in charge of the matter. According to the current law, a manufacturing company should carry out plant expansion worth at least US$30 million for five years to be designated as an individual foreign investment zone. After designation, corporate tax exemption is applied for the first five years and a corporate tax reduction of 50% is applied for the following two years.


'We Don’t Need Any Bridge Loan'

In the meantime, it has been found that GM Korea recently canceled the request for a bridge loan from the Korea Development Bank (KDB) it made last month.


At that time, GM made the request in order to pay a severance pay this month, saying that it needed approximately 500 billion won for the purpose and the KDB should lend about 85 billion won in accordance with its 17% shareholding in GM Korea. The KDB officially accepted the request, adding that it can lend the money on condition that GM actively cooperates in its due diligence process scheduled to be wrapped up early next month.


However, GM decided this month to make the payment without the aid of the bank. Under the circumstances, it is said that the South Korean government and the bank are feeling tense. This is because GM’s bridge loan request was not because it was short of money but to conduct negotiations in a binding and speedy manner based on the debt. The KDB planned to take the Bupyeong Plant as security, but this is unlikely to occur.


Some are predicting that GM will make the payment on its own while asking the KDB to share its costs for continuous plant operations. The costs are continuous whereas a severance pay is a one-off payment and, as such, it can be difficult for the KDB to extend the due diligence and negotiation periods in that case. In an average month, GM Korea pays subcontractors approximately 300 billion won in component cost. The KDB’s burden increases to 102 billion won even if GM makes a request for component costs for just two months.

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