General Motors is offering to add two new models to its South Korean line-up as part of a $2.8-billion, 10-year investment plan that could forestall a clash with the government and its union workers.
A week ago, GM announced plans to close its underutilized Gunsan plant, one of four assembly lines in Korea, and it strongly hinted that it was considering pulling out of the country entirely if it couldn’t reverse deep, ongoing losses.
In return, the Detroit automaker is seeking financial assistance from the South Korean government and is expected to also seek some aid from its traditionally militant unions. But, in turn, workers are warning that if GM doesn’t move quickly to assure a future for those plants they could strike.
“We don’t want to go as far as a full strike,” Lim Han-taek, leader of the union representing GM’s 14,000 Korean workers told the Reuters news service, “but if GM says it will completely withdraw from South Korea, we will lay down our tools.”
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At one time, Korea served as a major export base for GM, supplying a variety of small cars to both North America and Europe, among other markets. But demand has slid sharply as some production has been transferred back to the U.S. and as the result of the closure of GM’s Chevrolet brand in Europe.
From 2014 through 2016, the maker ran up $1.8 billion in net losses in Korea and was anticipating further losses without major changes. The decision to close the Gunsan plant, located about 120 miles from the South Korean capital of Seoul, will result in an $850 million charge, GM said, including $375 million in termination benefits for its 2,000 employees.
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The proposed $2.8 billion investment is part of the turnaround plan GM has worked up, and does not include a $2.7 billion debt-for-equity swap that would be offered the government in return for financial aid.
But government officials have been skeptical, Trade Minister Paik Un-gyu this week telling the South Korean parliament that GM Korea’s finances are “opaque” and need to be cleared up before any assistance can be granted.
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The U.S. maker owns a 77% stake in GM Korea, with the government-operated Korea Development Bank holding another 17%. The remaining shares are controlled by SAIC Motor Corp., the Shanghai-based automaker that is GM’s partner in China.