It's a Deal: GM, South Korea Promise Billions for Endangered Korean Division

The Buick Encore isn’t going away anytime soon. Built by GM Korea, the little crossover, its Chevrolet Trax twin, and the diminutive Chevy Spark will continue chugging out of the country’s three GM assembly plants and making a boat ride to the U.S., all thanks to a multi-billion dollar turnaround deal.

Faced with declining domestic sales and reduced exports, GM’s Korean division appeared on the edge of bankruptcy last week. A warring union resistant to the division’s wage and bonus demands and a hesitant South Korean government didn’t help matters. On Monday, however, the union representing 26,000 workers agreed to the automaker’s wage and bonus concessions. Members approved the deal today.

With GM’s end of the bargain — free up $600 million in operating funds — now complete, the taps can start flowing. There’s now $4.35 billion earmarked to turn the troubled automaker around.

$3.6 billion of that sum will come from parent company GM. The Korea Development Bank, a state-run entity that owns a 17 percent stake in GM Korea, will pony up another $750 million.

“The KDB has agreed to issue a conditional letter of commitment to GM on April 27, considering the urgency of GM headquarters’ liquidity support for GM Korea and aggravated management difficulties of suppliers, and smooth due diligence on GM Korea,” the bank said in a statement.

Meanwhile, GM will turn a promised $2.8 billion loan into equity.

According to Yonhap News Agency, part of the turnaround plan involved the production of two new vehicles. The vehicles are described as — get this — a “compact SUV and a crossover utility vehicle,” as if anyone wants to buy one of those. Production starts in late 2019 on the first model, with the second coming along in 2022. An annual production rate of 500,000 vehicles per year is projected for the company’s three South Korean plants by that year.

At least one of those models will surely find its way to the U.S., given the size of the market and the fact that GM’s American small car lineup appears very threatened.

The deal between GM, GM Korea, and the South Korean government should be finalized by early May.

[Sources: Reuters, Yonhap]