GM spending pledge aims to soothe South Korea doubts

General Motors’ South Korean subsidiary, acquired in 2002, has become one of the US company’s most successful foreign operations. But it has been a difficult ride, with the company plagued by strikes and speculation that it may reduce its presence in Korea, or pull out altogether.

These concerns may be eased by GM’s announcement on Friday of a Won8tn ($7.3bn) five-year investment plan, aimed at expanding research and production.

The investment will be spent on developing six new vehicles, and doubling the size of GM’s design centre in Korea to make it the company’s third-largest, behind those in the US and Brazil.

“GM Korea will continue to play a major role in our global growth plans,” Tim Lee, Head of GM’s international operations, told reporters, adding that the “huge” investment underlines GM’s long-term commitment to South Korea.

The new investment means that its annual investment in the country will increase significantly from the average level of Won1tn in recent years.

GM Korea serves as a major production centre for the carmaker’s compact vehicles with a quarter of its Chevrolet cars made in the country, and about 80 per cent of the cars exported abroad. But GM has only a 9.5 per cent market share in Korea, as it struggles to compete with dominant domestic rivals such as Hyundai Motor and Kia Motors, which control nearly 80 per cent of the market.

Despite the strength of its South Korean manufacturing operation, GM has failed to assure its workers and local consumers of its long-term commitment. Its labour unions are angry over the company’s restructuring plans after it cut about 8 per cent of its South Korean workforce last year. Fears of a possible exit or output cut by GM have intensified since the company said in November it would not produce its next-generation Chevrolet Cruze compact car in South Korea.

That came a month after the group revealed it was in talks to take full control of its Korean operations, where it has nearly 77 per cent, by buying a 17 per cent stake form state-run Korea Development Bank, its second-largest shareholder.

“We have simply chosen to do so to redeem our shares,” Lee said, asking reporters to not interpret the talks with KDB any other way. But the attempt to take full control of GM Korea is seen by many as a move for further restructuring in the future, as KDB has the power to veto such a plan.

GM’s union officials have complained about the controversial moves, saying they signal a “red light” for the company’s future. They are also angry that the company’s western managers do not take their demands seriously. No surprise, then, that Lee cited “collaborative” relations with its union as a major challenge for the company this year, along with the strengthening local currency, which is expected to hurt its profitability.

It remains to be seen whether the latest investment plan will help assure the company’s South Korean employees about its long-term commitment. If not, GM will need to think of other ways to do so, as it seeks to sustain its successful manufacturing performance in the country.

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, FT