Government bailout and union concessions by April 20, or else… Government accuses GM of “opaque” management.
Manufacturing small cars profitably is tough in a world where SUVs are hot. But this…
Barry Engle, GM executive VP and president of GM International, threatened on Monday during a meeting with the union leader that GM Korea would file for bankruptcy if the union doesn’t make the concessions GM seeks by April 20, according to union document reviewed by Reuters.
He also said the South Korean government – which owns 17% of GM Korea via the state-owned South Korean Development Bank – should promise to provide support for GM Korea by April 20. GM claims that GM Korea needs $600 million in funding by the end of April. And more layoffs loom.
On March 9, Engle had said in a letter that without more funding GM Korea would face a first quarter “cash crisis.” GM would convert $2.7 billion in debt that GM Korea owes GM into equity, he said. This would lower the interest expense that GM Korea has to pay to GM. GM would also “fund its portion of the $2.8 billion in investment required to bring products to market and update the tooling and equipment to build them.”
The union had conceded at the time that it would not demand a pay raise and bonuses this year. But it asked GM for a future production plan and job security. A union official told Reuters that GM Korea still insists that the union agree to cut benefits.
So this threat of bankruptcy moves the big clock forward.
GM Korea employs about 16,000 people. Those jobs would be at risk. GM had said in February that about another 180,000 jobs depend on the industries that support and supply GM Korea’s four manufacturing plants. Many of those secondary jobs would also be at risk.
Production has plunged 44% from 943,000 vehicles in 2007, when it was still GM Daewoo, to 524,000 vehicles in 2017, of which 392,000 were exported, including to the US.
According to GM’s statements, GM Korea has been losing money. But this may not be so clear-cut. On February 20, Trade Minister Paik Un-gyu accused GM in front of lawmakers of “opaque” management in Korea. “By opaque we mean the high rate of profits to raw material costs, interest payments regarding loans and unfair financial support made to GM’s headquarters.” And he said that taxpayers’ money would not be wasted in government efforts to deal with GM.
This was taken seriously. In early March, the South Korean Development Bank began a due-diligence audit of GM Korea. The result of this audit will be part of the decision whether or not to move forward with the bailout.
The whole fiasco has been years in the making, but it broke into the open on February 12, when GM announced the “first step” in the “necessary restructuring” of GM Korea, namely shutting down its factory in Gunsan “by the end of May 2018.” The “next steps” would affect the three remaining plants, whose fate would be decided “by the end of February.”
So decisions are running a little behind schedule. But the bankruptcy threat was the most serious indication yet where this may be headed without a state bailout.
Hot and heavy breathing is taking place behind the scenes of the looming “trade war.” And it was promptly leaked to calm the markets. Read… Trump Sends To-Do List to China on Trade
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