GM and Seoul agree to US$7 billion bailout for South Korea unit

Seoul

US AUTO giant General Motors (GM) and Seoul have agreed on a multi-billion-dollar bailout for the firm's troubled South Korean unit, a government minister said on Thursday.

GM is the largest US automaker and one of the biggest players in the global industry, but its South Korean subsidiary is in the red; its production has fallen by almost half in the last decade.

Earlier this year, GM Korea announced a plan to shut down Gunsan, one of its four plants in the country, and lay off some 2,000 personnel, sparking a prolonged strike and negotiations with the authorities.

Workers and management reached a deal last month on job and welfare payment cuts and a wage freeze across the firm, paving the way for Thursday's announcement.

The US parent will inject US$6.4 billion into GM Korea and the state-owned Korea Development Bank (KDB) will plough in another US$750 million, finance minister Kim Dong-yeon told journalists.

GM will invest US$2 billion in facilities over 10 years and spend US$1.6 billion on corporate restructuring and operational costs. An existing US$2.8 billion loan to GM Korea will be converted into preference shares, saving the unit 150 billion won (S$147.4 million) in interest every year.

GM now owns 77 per cent of GM Korea and KDB has a 17 per cent stake, with the remaining shares held by China's SAIC Motor. The firm was rebuilt from the wreckage of local automaker Daewoo, which went bankrupt in 2000.

But production has fallen from 940,000 cars in 2007 to 520,000 last year, when GM Korea lost some US$139 million in South Korea.

Mr Kim said: "We hope that GM Korea carries out this bailout package faithfully so that it may become a success story.

"If GM Korea fails to turn around, 150,000 jobs will be threatened and some 3,000 suppliers will be in difficulties," he added.

Under the deal, GM will remain in South Korea for at least 10 years, with KDB regaining veto power over GM's rights to sell assets in the country. GM also pledged to allocate two new models to its Korean plants. In its first-quarter results last month, GM took a US$942 million hit for the cost of closing the Gunsan facility. AFP