Union Reports $2.8 Billion GM Korea Bailout Proposed

The Korean Metal Workers Union reports on its national website that General Motors has made proposals to the Korean government for securing financing and other considerations that would enable it to consolidate the operations of GM Korea and ensure its long-term continuity in the country.

The KMWU’s GM Korea branch represents all 16,000 of that company’s plant workers.

The website report says GM Korea wishes to raise funds for streamlining the company through a stock offering of some 3 trillion won ($2.8 billion), with all shareholders purchasing a proportional share of the new issue.

Reuters is reporting a figure of $2.2 billion, citing four unnamed sources.

GM Korea holds a 77% stake, Korea Development Bank (KDB) holds 17% of the shares and GM’s joint venture partner in China, Shanghai Automobile Industry (SAIC) holds a 6% share.

According to the reported proposal, KDB would have to purchase 500 billion won ($450 million) of the new shares as its proportionate allocation.

That may not seem a staggering figure considering the big numbers needed for the turnaround, but it is a little less than GM paid to acquire the assets it cherry-picked from the former Daewoo Motors in 2002. It also is about half the amount that a brand-new quarter-million-vehicle-capacity plant would cost.

Other sources say GM also wants KDB to provide GM Korea with a sizeable long-term credit instrument at favorable interest rates. That would be a turnaround from the current situation in which GM Financial and other GM sources have been loaning funds to the Korean subsidiary.

GM has been doing that since 2009 after KDB refused to provide additional funding for the beleaguered company without its officials getting a strong role in GM Korea management decisions. That concession never was made. KDB has a single director on the GM Korea board.

GM said earlier this month it would close its Gunsan plant by the end of May. Some 2,000 workers will be affected by the shutdown.

The plant can build 250,000 units a year but has operated at just 20% of capacity for the past two years. GM International has a plan for bringing new product to fill the lost capacity but says it needs an “urgent” demonstration of support from the Korean government and the KMWU before any product allocations can be made.

The KMWU website reports GM has put out the carrot of a Korean-assembled new high-tech car that would sell in all world markets if the union and government support its turnaround plan.

No such vehicle has been identified, and it is unlikely it would be given to GM Korea as it now exists with high costs, low productivity and manufacturing operations frequently impeded by a confrontational labor union.

GM Korea does have under development the 9BUX advanced replacement for its successful Chevrolet Trax subcompact CUV and its Buick derivatives, but that is not due out before 2020.

GM Korea exported 114,000 units of the Trax (32,000) and Buick Encore (82,000) to the U.S. last year. The Encore is Buick’s best-selling model.

Other possibilities for revitalizing GM Korea, the union says, would include intensifying the automaker’s robust exports of completely knocked-down units. This is probably the company’s strongest suit and yields better bottom-line results than the fully assembled vehicle business. Both sectors currently record an equal number of unit sales.

GM Korea has confirmed none of these reports. A spokesman tells WardsAuto the company is keeping its negotiations with government ministries and the KDB confidential.