April 20, 2024

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[THE INVESTOR] General Motors is preparing to put its Korean arm GM Korea under court receivership after the government expressed negative feedback in designating the automaker’s two plants in Korea as foreign investment zone, according to local news reports on April 13.

The automaker’s headquarters has reportedly completed its review on moving its production of GM Korea’s key export model Chevrolet Trax to China. It will also gradually remove its production lines in Korea, leaving only research, design and sales personnel, according to sources. 

The fresh reports came a day after the Ministry of Trade, Industry and Energy was not positive about GM Korea’s proposal with respect to free investment zone. On April 12, the ministry received the application from GM Korea to call for its Bupyeong plant and Changwon plant to be designated as foreign investment zone.

The firm said in its application that it would invest more than $30 million in building new plants in Bupyeong and Changwon respectively and produce 4.75 million units of cars over the next decade in Korea, with the aim of generating 100 trillion won ($93 billion) in cumulative sales.

However, the ministry said the proposed investment plan is not enough for the designation for foreign investment zone.

“We asked GM Korea to supplement the plan. We are in talks with the firm to bring more about new growth technologies (related to self-driving or future cars),” said Paik Un-gyu, the Minister of Trade, Industry and Energy, on April 13.

It will take a few month for the ministry to make a final decision after reviewing feasibility studies and getting approvals from related committees.

“We will proceed with the procedure as early as possible so that it will not be obstacles to the management normalization of GM Korea. It is still difficult to conclude as there are many uncertainties,” said an official from the ministry.

When a firm’s plant is designated in foreign investment zone, its corporate tax will entirely be exempted for the first five years and 50 percent for the following two years.

In order to be designated as foreign investment zone, the company should invest at least $30 million in building new production facilities. When this condition is satisfied, the government considers the possibility of carrying out investment, balanced development among regions and job creation.

On April 13, GM president Dan Ammann said in interview with Reuters, common ground must be reached on a long-term financial restructuring of GM Korea by Aplril 20 and otherwise, the operation would likely seek bankruptcy protection.

“Our preferred path remains to find a successful outcome here...It’s the right thing for all the stakeholders. But everybody has got to come to the table by April 20,” he said.

By Shin Ji-hye/The Korea Herald (shinjh@heraldcorp.com)