South Korea takes more cautious view on GM Korea turnaround than US automaker
General Motors' South Korean unit is expected to swing to a profit from 2022, state-run Korea Development Bank (KDB) said on Friday, offering a more subdued outlook for the troubled unit compared with the U.S. automaker which sees a profit from 2019.
KDB chairman Lee Dong-gull told reporters the view was based on due diligence done on the loss-making unit by Samil, the Korean affiliate of auditing firm PricewaterhouseCoopers. The return to profit will be driven by labor cost cuts, he said.
GM said last month the unit will be able to return to profit next year, with US$400 million to US$500 million in annual cost reductions through plant closure, labor and other efficiencies.
The differing viewpoints of the two biggest shareholders of the unit, called GM Korea, underscore the severity of the challenges facing its restructuring. Analysts and customers, as well as the South Korean government, have had doubts on how long the unit will remain in business.
GM Korea averted a bankruptcy filing with wage concessions from its labor union last month. The U.S. automaker in February announced its plan to shut down one of its four plants in South Korea and cut headcount by nearly 3,000.
GM Korea's annual net loss widened to US$1.1 billion last year, its fourth straight year in the red after GM’s decision to pull its Chevy brand from Europe led to reduced exports to the key export market.
KDB is the second biggest shareholder of GM Korea with a 17 percent stake. The U.S. automaker owns 77 percent, while China's SAIC Motor Corp Ltd controls the remaining 6 percent.
Samil conducted due diligence on the unit to assess its viability, as South Korea mulled whether to inject money into the unit.
GM and South Korea have agreed on a rescue package worth US$7.15 billion, including US$750 million from KDB.
Under the terms of a binding deal to be signed on Friday, GM cannot exit its investment for 10 years.
“No one can guarantee the future of GM Korea after 10 years, but the deal paved the way for a turning point for GM Korea," Lee said. "I hope this will create an opportunity for GM Korea to recover competitiveness."