Report says GM Korea can turn a profit by 2020

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Report says GM Korea can turn a profit by 2020

GM Korea, the local unit of the U.S. automaker, can make a profit by 2020 if all sides can agree to a comprehensive restructuring plan, a preliminary report said Sunday.

According to financial market sources, the due diligence being carried out on the carmaker revealed that GM Korea can avoid large-scale layoffs of workers and even reverse the 3 trillion won ($2.8 billion) in deficits posted over the past three years amid a drop in domestic demand and export orders.

“The initial findings have been forwarded to government policymakers for review and clearly show that the carmaker is more valuable if it stays open compared to it being liquidated,” a market insider, who declined to be identified, said.

He stressed that what is important at this juncture is an agreement being reached on measures that can lead to fresh investment that can keep the company afloat.

Others that examined the report said that it is focused on the company’s future prospects and growth potential, and not on the causes of the current situation.

The management of GM’s Korean affiliate is calling for measures that include shutting down one of its four production plants in the country, a wage freeze, giving up bonuses for employees and the suspension of some work benefits.

GM Korea warned late last week that unless an understanding is reached, it will convene a board meeting on Monday and decide whether to place the cash-strapped company under court receivership.

The company’s labor union, so far, has rejected such moves and demanded that GM Korea reopen the plant in Gunsan that it said would be closed in May.

The Detroit-based carmaker, on the other hand, proposed converting $2.7 billion in debt owed to it by GM Korea into equity and offered to share an investment of $2.8 billion between GM Korea and the state-run Korea Development Bank (KDB).

It also suggested allocating production of two new vehicle models to Korean plants to ensure a stable output of vehicles.

The KDB, whose 17 percent stake in GM Korea makes it the company’s second-largest shareholder, has also said it could inject about 500 billion won ($470 million), or 17 percent of its $2.8 billion deficit, into the Korean unit if it finds the results of due diligence satisfactory.

Related to the deadline that had been pushed back to allow for more talks, GM sources stressed that unless the union accepts the terms offered that include the relocation of workers from its Gunsan plant, the company is ready to take “drastic actions,” hinting it may apply for court receivership that can lead to GM’s eventual exit from Korea.

“From the standpoint of the company, its Korean operation can be replaced with production facilities in China and Vietnam so there is no merit in holding onto its business here, which is already cited for high labor costs and contentious management-worker relations,” a GM representative familiar with the ongoing talks said.

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