KDB agrees to GM Korea’s R&D spinoff

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KDB agrees to GM Korea’s R&D spinoff

The spinning off of GM Korea’s R&D and design division has cleared its last hurdle, five months after the initial announcement was made, as the automaker’s second-largest shareholder flipped its position and finally approved the move.

GM Korea’s labor union is already up in arms over the announcement, even threatening a full walkout.

The Korea Development Bank (KDB), a state-owned institution, owns 17.2 percent of GM Korea. During GM Korea’s shareholder meeting Tuesday, it said it has reviewed the feasibility of the spinoff and came to the conclusion that the new R&D and design company would contribute to the growth of the local auto parts industry and also create jobs.

A main reason for KDB changing its earlier position was GM’s agreement to involve local auto parts suppliers in the development of vehicles to be produced at GM Korea’s plants.

The Korean bank filed an injunction immediately after GM Korea on Oct. 19 approved the spinoff during an emergency shareholder meeting that KDB failed to attend. On Nov. 28, a court upheld the injunction.

Since then, GM Executive Vice President Barry Engle came to Seoul, met with KDB and presented the business plan for the GM Technical Center Korea.

GM Korea said in a statement released on Tuesday that the new center will lead in the engineering of two vehicles, adding that both vehicles will have the same architecture. The designs will include high levels of local content.

As part of an agreement between the Korean government, KDB and GM in May to provide funding for financially-challenged GM Korea, GM agreed to make a next-generation sub-compact SUV and a new CUV-type vehicle at its plants in Korea.

SUV production is to start in 2021 at GM Korea’s Bupyeong plant in Incheon, and the CUV is scheduled for production at the company’s Changwon plant in South Gyeongsang starting in 2022. The initial deal was only to manufacture the two vehicles in Korea.

The decision to include Korean parts suppliers in the development stage is expected to help suppliers secure contracts for the new vehicles.

“As the parts suppliers will be participating in the development process of a new automobile model, there is a possibility that local parts suppliers will be in a stronger position,” said Lee Dong-gull, KDB chairman. “This cooperation will also help parts suppliers hire additional engineers.”

Engle said that the “allocation of the two engineering programs, in addition to the manufacturing programs announced earlier this year, demonstrated GM’s commitment to its operation in Korea.”

“Now it is critical that all stakeholders do everything they can to deliver these important programs - and also to support turning around the financial performance of our operations, to be sustainable and profitable for the long term,” Engle said

“We are excited about the new GM Technical Center Korea, which enables our local engineers to undertake these significant engineering programs - and positions us to win more global work in the future,” said GM Korea President and CEO Kaher Kazem said. “We remain focused on building a strong, profitable and sustainable future for GM Korea.”

The union continues to oppose the deal, arguing the spinoff is a step towards closing or selling plants. It has argued that the R&D center was created so that GM would not violate the agreement reached in May. In the agreement, the company said it would remain in Korea for at least 10 years.

The GM Korea union said in a statement Tuesday that it will discuss whether to go on strike in response to the latest news.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]
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