GM Korea launches its effort to achieve profitability as parent General Motors and the Korea Development Bank tentatively agree to provide a $5.1 billion financial lifeline and hourly workers ratify a contract that freezes their wages and denies them bonuses for 2018.
The 10-year financing agreement, which awaits formal approval, was signed Thursday by GM President Dan Ammann and KDB officials. It calls on GM to invest 4.74 trillion won ($4.36 billion) in GM Korea and KDB to invest 810 billion won ($752.5 million).
In addition to the new financing, GM Korea plans a debt-for-equity swap of its current $2.7 billion (2.9 trillion won) of debt to GM by converting the total owed to shares in the company. The KDB does not comment on reports GM is willing to change the terms of the swap so the bank can maintain its current 17% stake in GM Korea.
Under the agreement reached Thursday, GM pledges to add two new vehicles to Korean plants to bring completely built-up production levels up to 500,000 units annually by 2020 and maintain its Korean operations for the next 10 years.
Of 10,223 Korea Metal Workers Union members voting – nearly 80% of GM Korea’s hourly workforce of 13,000 – the wage-freeze pact was approved by 6,880, or 62.3%.
The union also backed off from its opposition to the planned May closing of GM Korea’s underutilized plant in Gunsan. The automaker agreed to provide special retirement packages or job transfers to the 680 workers who had not applied for early retirement and were facing layoffs without pay.
GM’s quarterly report notes closure of the Gunsan plant will result in an overall 25% capacity reduction by GM Korea.
The tentative agreement with the KMWU was reached at 5 p.m. Monday, April 23, just one hour ahead of the 6 p.m. deadline GM had set for filing for bankruptcy. Besides accepting a wage freeze and foregoing benefits that in the past have reached $20,000 per worker, union members also gave up certain benefits.
The GM quarterly report outlines the goals of the restructuring plan as “zero production loss, $400 million-$500 million in annual cost reductions, profitable at the enterprise level by 2019, with a return on investment at the enterprise level of 10% to 20%.”
GM Korea sold 524,547 vehicles at home and in overseas markets in 2017, a decline of 12% from 2016. It exported 543,665 completely knocked-down kits, a drop of 18%.