General Motors and the Seoul government have reached an agreement over the bailout package of $7.15 billion to get GM South Korea back on track. The South Korean unit of the American Company has been facing losses due to declining sales in the last few years.
As a part of the deal, GM will convert the $2.8 billion owed by GM South Korea into shares and extend further loans of $3.6 billion to the South Korean unit. Korean Development bank (KDB), Korea’s state run bank which also holds 17% shares of GM South Korea will also inject $715 million into the company.
Of this money, GM will invest $2 billion into its production facilities locally in the next 10 years. The remaining $1.6 billion will be spent on restructuring and streamlining operations.
The parent company of GM South Korea will be required to maintain its stake for at least five years and also keep maintaining at least 35% of share between 2023-2028. As per the deal GM will introduce two new vehicle models in South Korea’s vehicle plant. The state run bank KDB will have veto power over management decisions.
GM will also set up its Asia-Pacific(except China) regional office in South Korea. This will act a a base for sales, production, technology development and R&D for the region. GM will also increase their purchasing of components from South Korean firms.
A few months back, GM Korea closed down its Gunsan plant which was one of the four manufacturing bases it had in the country. This led to almost 2000 workers losing their jobs. As a result GM had been facing a lot of protests and strikes across the country. The closure of the Gunsan plant led to GM losing $942 million.