The South Korean government and General Motors Co. reached an agreement Thursday to spend 7.7 trillion won (US$7.16 billion) on keeping the troubled South Korean unit of the USA carmaker afloat.
The deal could be signed as soon as Friday.
"I expect GM to restructure its South Korean unit on a regular basis", stated Lee Hang-koo, a senior researcher at the Korea Institute for Industrial Economics and Trade.
But production has fallen from 940,000 cars in 2007 to 520,000 previous year, when GM Korea lost some US$139 million in South Korea. As part of it, Korean officials say GM has agreed to stay in the country for at least 10 more years. 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. The automaker will also locate its Asia-Pacific headquarters, excluding Chinese operations, in South Korea. The automaker has also announced strategies to close one of its four South Korean plants, cut headcount by almost 3,000 and has reached a deal on wages with its employees.
"It was a very hard and a critical decision", chairman of the financial watchdog Financial Service Commission Choi Jong-ku said at the briefing, adding the government had to consider the risk to 156,000 jobs at GM Korea and its suppliers, the eco-system of South Korea's vehicle industry, as well as exports and local economies.
The U.S. parent will inject $6.4 billion into GM Korea and the state-owned Korea Development Bank (KDB) will plough in another $750 million, finance minister Kim Dong-yeon told journalists.
Barry Engle, President of GM International, said on Thursday that the automaker's commitment to South Korea was long-term and honest, adding that although there was still a lot of work to do, he sees a bright future in the country.