GM Gets Green Light for R&D Subsidiary in Korea

      December 19, 2018 12:47

      State-run Korea Development Bank has caved in to GM's demands to set up a research and development unit that critics feared was a preliminary to closing down car factories here.

      KDB, which is the second-largest shareholder in GM Korea with a 17 percent stake, said Tuesday that it has agreed to the U.S. automaker's plan to set up the R&D unit here. In return, KDB won a pledge that the new subsidiary will develop two new global models and be kept open for the next 10 years.

      GM Korea authorized the plan at both board and shareholders' meetings on Tuesday, and the R&D unit will be launched later this month, absorbing some 3,000 staff from other operations.

      KDB chief Lee Dong-gull told reporters that the R&D unit will develop a new SUV and a crossover utility vehicle. KDB caved in because the situation was getting desperate. GM Korea has suffered cumulative losses of more than W3 trillion since 2012 (US$1=W1,130). It shut down an assembly plant in Gunsan earlier this year and is expected to have racked up losses of another W1 trillion in 2018.

      KDB and unionized workers both opposed the R&D unit at first because they thought it was a ruse by GM, which has been shutting down factories worldwide, to sidestep its pledge to the government to keep operations running in return for a massive bailout.

      But the prolonged standoff with workers made the situation worse for both KDB and GM Korea. A KDB staffer said, "We sensed a crisis when we saw GM shut down five factories in North America citing poor efficiency even though it made more than W40 trillion in profits over the last two years, and prolonged losses at GM Korea were feared to prompt GM to pull out of the country altogether."

      A lawsuit brought by KDB paved the way for an exit strategy. The Seoul High Court ruled on Nov. 28 that GM Korea broke the law by unilaterally authorizing the R&D unit plan at a shareholders' meeting. GM had no time to appeal the ruling and appears to have extended an olive branch to KDB.

      GM's head of overseas operations, Barry Engle, said in a statement that it is "critical that all the stakeholders do everything they can to deliver these important programs -- and also to support turning around the financial performance of our operations, to be sustainable and profitable for the long term."

      But unionized workers are threatening to strike, raising fears that the issue will keep haunting GM Korea. 

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