The Korean government and GM decided to invest US$ 7.15 billion to normalize GM Korea.
The government finalized its plan to support GM Korea in a meeting of ministers presided over by Kim Dong-yeon, deputy prime minister and minister of strategy and finance, on May 10.
Following the meeting, the Ministry of Trade, Industry and Energy and GM signed a memorandum of understanding (MOU) with GM at the office of the Seoul Auto Industry Cooperative Federation. The Korea Development Bank (KDB) will issue a legally biding letter of consent (LOC) to GM on May 11.
According to the support plan, a total of US$ 7.15 billion will be put into GM Korea. GM and the KDB will shell out US$ 6.4 billion and US$ 750 million, respectively.
Of the total, US$ 2.8 billion is GM’s loan to GM Korea which will be converted to equity in GM Korea. Of the US$ 3.6 billion that GM will inject into GM Korea, US$ 800 million will be invested in restructuring and turned into equity within this year. GM will also provide US$2.8 billion in loans to GM Korea, of which US$2 billion will be used for facility investment and US$800 million as operating capital.
The US$750 million coming from the KDB in the form of equity investment will be invested in production facilities this year.
"The KDB, the second largest shareholder of GM Korea conducted an in-depth due diligence inspection of GM Korea,” said deputy prime minister Kim. “The results of the due diligence inspection said that if new models with strong competitiveness are allocated and efforts are made to prune fixed costs, the cost of sales ratio and the operating profit ratio will gradually increase, thereby, empowering GM Korea to normalize sales activities and achieve long-term survival.
As a device to prevent GM from “taking money and running,” the KDB recovered its veto right that the state-run bank lost in October of last year. Therefore, the consent of the KDB is required for GM to sell more than 20% of GM Korea’s assets. The Korean government also explained that it strengthened its system to check the management of GM Korea including shareholders’ right to demand an audit.
GM will not be able to sell off its stake in GM Korea in the next five years, and have to maintain as the largest shareholder with a stake of more than 35% in the second next five years.
Establishing GM’s Asia Pacific Headquarters in S. Korea
GM USA headquarters also announced that it would set up its Asia Pacific headquarters in Korea and would procure more parts from Korean suppliers in the future.
According to the MOU signed by minister Baek Woon-kyu and Barry Angle, president of GM, most of all, GM agreed to establish its headquarters for the Asia-Pacific region in Korea to strengthen GM's position and increase its mid- to long-term competitiveness and nurture GM Korea into the core base for production, sales and technological development in the Asia-Pacific region.
GM plans to make the most of the Asia-Pacific headquarters and GM Korea's R&D and design center when GM develops core parts for automobiles including engines, and parts for future vehicles. In addition, GM will spare no efforts in raising the competitiveness of Korean parts suppliers and cultivate human resources by continuing to steadily expand purchases of Korean parts worth two trillion won per year.
The Ministry of Trade, Industry and Energy of Korea also decided to help GM Korea through support for parts manufacturers’ research and development.
"The meaning of opening GM’s Asia-Pacific headquarters in Korea is not to create jobs but to lead GM to make direct decisions in favor of Korea by directly participating in the allocation of new models to GM Korea,” said Moon Seung-wook, head of the Industrial Innovation and Growth Office at the Ministry of Trade, Industry and Energy.
Special Financial Supports for GM Korea Partners
Moreover, the Korean government decided to operate a special counseling group to give financial support to GM Korea partners having difficulties due to a restructuring of GM Korea.
The Financial Services Commission (FSC) said that the special counseling group will serve as a guide to financial assistance programs as the group will be composed of the branches of the Financial Supervisory Service in Jeonju, Incheon and Changwon, the Financial Trouble Shooting Center for Small and Medium-Sized Enterprises of the Financial Supervisory Service, the KDB, the Export-Import Bank, the Industrial Bank of Korea, the Credit Guarantee Fund, the Technology Guarantee Fund and Seoul-based commercial banks among others.
In particular, the KDB decided to extend the maturity of loans and guarantees for small and medium-sized business partners of Gunsan Plant of GM Korea. The KDB will also lend facility funds and operating funds at low interest rates.
The government will also go ahead with a technology support project for all auto parts companies in Korea to increase the competitiveness of partner companies that produce parts separately and help them make a foray into overseas markets. The project aims to support research and development so that Korean auto parts suppliers will be able to develop parts for future automobiles such as core parts, parts for electric and autonomous vehicles, and international procurement parts.
Temporary Workers Criticize It ‘Misuse of Taxpayer Money’
Meanwhile, GM Korea's temporary workers began protesting against the government’s bailout program for GM Korea, calling the Korean government’s and GM’s financial support for GM Korea “the waste of taxpayer money.”
GM Korea Temporary Workers Council strongly refuted, saying, “The government should not support GM Korea with taxpayer money without turning illegally dispatched temporary workers into fulltime workers and reinstating temporary workers who were fired” in a press conference in front of the Korea Automobile Industry Cooperative Federation in Seocho-gu, Seoul, on the afternoon of May 10.
"We oppose the government's support with taxpayer money in order to guarantee laborers’ jobs and right to live," they said. “The Moon Jae-in administration has to cancel the ridiculous support with taxpayer money and make new measures.”
There are more than 2,000 GM Korea temporary workers including about 100 workers at the Gunsan factory, about 1,200 workers at the Bupyeong factory, and about 600 workers at the Changwon factory. Their job security issue was not brought up at the negotiable table for collective bargaining.
They also criticized the government's injection of funds as squandering taxpayer money, questioning the KDB’s due diligence inspection of GM Korea and the process of negotiations between the Korean government and GM Headquarters.
KDB complained that GM did not submit key data until mid-April, but after April 20, it suddenly judged that the normalization of GM Korea would be possible," Hwang Ho-in, chairman of the Bupyeong branch of the GM Korea Temporary Workers Council said, raising an allegation that the due diligence inspection was poorly conducted. .
"Even though GM said that it would invest US$ 3.6 billion in fresh funds, but the money is a loan so it would increase interest expenses every year," Hwang said. “Even though the KDB brags about securing the veto right, the KDB was unable to hold GM in check before the KDB lost the veto right in October of last year."