Don’t rely on bailouts

Troubled GM Korea, formerly Daewoo Motors and the third largest automaker in South Korea, has become an economic and social hot potato. General Motors reportedly demanded an additional stake purchase or tax break from the government in exchange for keeping its Korean operations open. The American carmaker plans a nearly 3 trillion won ($2.8 billion) recapitalization to turn the Korean unit around. At its current stake ratio, the state-run Korea Development Bank would have to shoulder 510 billion won of that. In short, this automaker needs more bailouts.

GM indicated that it may have to shut down its manufacturing lines in Korea if it does not get government relief. GM pulled out from Australia when the government stopped aid in 2014. GM Korea employs over 16,000 people at its four factories in Gunsan, Boryeong, Bupyeong and Changwon and has a supply chain of over 3,000. When including suppliers, around 300,000 jobs are at risk.

GM Korea is in a financial mess. The company’s deficit over the last four years has piled up to 2.5 trillion won. The company cannot get new loans because its debt ratio hovers at 30,000 percent. After GM cut its Europe shipment, the operation ratio at Gunsan has not reach 20 percent. Without radical action, the producer cannot last long.

But an additional public bailout requires rationale that will persuade taxpayers. The management and union must answer for the poor performance. GM Korea did not assign competitive models to its Korean sites while reducing the shipment. GM Korea’s conditions allegedly worsened because the carmaker had to buy parts beyond the normal levels. GM Holdings’ lending rate to the Korean unit was also excessively high.

Management and stakeholders must show the will to save the Korean operation first by injecting new investments and competitive models. The union also must demonstrate a commitment to hone productivity. Without trying to save itself, the carmaker cannot expect a bailout from the government and the public.

JoongAng Ilbo, Feb. 13, Page 30