Is General Motors Fleecing the South Korean Government?

GM Korea requests financial aid and tax benefits

to keep business afloat

By Jennie Oh 

Unionized workers of GM Korea Co., the South Korean unit of General Motors, portest against the

plants closure at the gate to its plant in the western port city of Gunsan, South Korea, 14 February

2018. General Motors Co. announced it will shut down an assembly plant in South Korea, one of its

four in the country, by the end of May due to a fall in demand. File Courtesy of Yonhap/UPI.

SEOUL, UPI -- Tension is mounting as the South Korean government considers providing financial support for General Motors Korea to keep a plant in Gunsan running and avoid thousands of job cuts.

According to Chosun Ilbo, the automaker on Wednesday submitted a proposal to the South Korean government, requesting financial aid and tax benefits to keep its Korea business afloat, and settle 2.7 trillion won ($2.5 billion) worth of liabilities.

In the proposal, GM Korea reportedly suggested its second largest shareholder, the state-run Korea Development Bank, inject more capital into the firm through measures such as a debt-to-equity swap, as well as asking the government to provide additional financial aid to support operation costs and tax exemption benefits for new investments in the country.

This comes after GM on Tuesday announced it would close down one of its four factories in South Korea by the end of May, and charge $850 million as part of broader restructuring efforts.

With the closure is expected to cut 2,000 jobs at the factory and affect another 10,000 workers at subcontractors, Seoul said it will decide on whether to provide financial aid to keep the assembly plant open after reviewing the company's new investment plans for local operations.

The government also called for an audit of GM Korea to analyze the company's business situation before considering any options.

In recent years, the Detroit automaker has been winding down on its global operations and closing down assembly plants in unprofitable markets which has taken a toll on its Korea business which exports more than half of its vehicles.

GM Korea recorded some $1.8 billion in net losses between 2014 and 2016, and is expected to have seen an estimated $556 million in losses last year.

Coupled with weaker demand, rising labor costs are also have also contributed to poor performance, according to the company. Personnel expenses in 2015 jumped more than 50 percent from 2010.

GM President Dan Amman said future investment plans for the remaining three plants depend on whether the South Korean government is willing to provide financial aid and whether GM Korea Union workers are willing to take pay cuts.

However, union members say that GM Korea has fallen into the red due to mistakes made by management such as paying high interest rates for loans from its mother company and delivering Korean-made cars to global markets at low prices.

Seriously? Detroit lends Gunsan money at high interest rates and then holds Seoul ransom to make the payments. That sounds like fleecing to me! Is this GM's new business model instead of making cars efficiently and selling them at a profit?

Union members on Wednesday agreed to demand the cancellation of the closure and operations to be resumed, calling for the chief of GM Korea to resign.

Meanwhile, experts have voiced concern toward the government's response, criticizing that financial aid would involve millions in taxpayers' money.

"Of course, the easiest solution is assisting the company but we may just be investing in a sinking ship. The government must consider whether General Motors in Korea is sustainable. If not, it is better to let it go," Yang Jun-seok, Professor of Economics at Catholic University, told UPI.

Noting that workers at the Gunsan factory would receive hefty severance pay, Yang suggested that the government could support small-and-medium businesses and new industries to boost the regional economy.

"The Gunsan area will take a significant blow but considering GM's management problems which lack transparency, the government has no duty to help the company," Kim Pilsu, a Professor of Daelim University College said.

Experts also warned that the issue should not be politicized, with South Korea's local government elections coming up in June. Rival parties in the country have called on the government to take fast action to ease concerns in the Gunsan area over the prospects of the local economy.

The ruling Democratic Party said the government must swiftly roll out plans to support factory workers who would lose their jobs, while the minor opposition Bareun Future Party urged President Moon Jae-in to declare the area a special employment disaster zone and deliver administrative and financial assistance.

The Presidential Office on Wednesday showed a cautious stance, saying it will observe the developments to come.