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(EDITORIAL from Korea Times on March 1)

2018/03/01 09:18

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GM going too far

Auto giant should raise transparency, accountability

The government and the state-run Korea Development Bank (KBD) are holding negotiations with General Motors (GM) over how to rescue the latter's troubled Korea unit. The negotiations began last week when GM International President Barry Engle visited Seoul.

Strategy and Finance Minister Kim Dong-yeon presented a three-point principle: have major shareholders take responsibility, have shareholders, creditors and workers share the burden, and for management to come up with a long-term development plan.

The principle is in response to GM's excessive demands. In a meeting with Korean lawmakers and officials, Engle floated the idea of allocating two new models _ an SUV and a crossover utility vehicle _ to its assembly lines in Bupyeong and Changwon. He promised to keep the annual production capacity at 500,000 cars per year.

But his offer was not without conditions. He demanded the KDB participate in a debt-equity-conversion. According to him, GM will convert $2.7 billion, which GM Korea borrowed from the Detroit-based GM headquarters, into equity. The KDB is the second-largest shareholder of GM Korea with a 17-percent stake.

However, the government is finding it difficult to accommodate the demand. The reason is that the KDB will have to inject about 500 billion won ($460 million) into GM Korea. It argues that GM should be responsible for the debt problem because GM Korea's indebtedness resulted directly from the former's poor management. Certainly it is wrong to pass the buck to the Korean side.

The real problems stemmed from the global auto giant's "beggar-thy-subsidiary" policy. GM has exploited its Korean affiliate by collecting unduly high interest on its loans to GM Korea. The annual interest rate is as high as 5 percent, far higher than the market rate of about 3 percent.

It is as if GM makes easy money by acting as a loan shark. This practice has helped the U.S. carmaker fatten its pockets while making GM Korea a beggar. GM has also forced its Korean unit to pay excessively for research and development and the use of the brand.

In addition, it has supplied components at unfairly high prices while purchasing assembled cars at lower prices. As a result, GM Korea's production costs account for more than 90 percent of its revenue. Under these circumstances, it is impossible for GM Korea to stay afloat.

GM should realize that it cannot bring GM Korea back to normal even though it promises to pour $2.8 billion in new investment into it. Its demand for the designation of GM Korea factory sites as a foreign investment zone is not possible under present law. It must come up with more viable measures to revive the shaky unit.

Most of all, GM ought to convince Korea that it has no intention of withdrawing from the country after winning financial aid and tax benefits. For this, GM should improve its transparency and accountability in running GM Korea.