[Editorial] GM must work to ensure sustainability over next decade

After some controversy, GM Korea has gone ahead with a corporate spinoff by creating a separate research and development (R&D) firm. GM Korea approved the R&D split at an ad hoc general shareholders’ meeting on Dec. 18. With this move, GM Korea has now been split into the newly created GM Technical Center Korea and the existing GM Korea, which will now focus on production.

The GM Korea split went ahead after second-largest shareholder Korea Development Bank (KDB) changed its position to support the move. When GM Korea first voted on the corporate spinoff at an ad hoc general shareholders’ meeting last October, KDB initially responded by asking for an injunction to suspend execution of what it called a “unilateral decision.” The court sided with the bank, acknowledging its veto powers. The GM Korea labor union was similarly opposed, calling the split a “preliminary effort to pave the way for GM to withdraw from South Korea.”

KDB subsequently received a project plan for the R&D firm from GM Korea, which it commissioned an outside agency to look over. The bank reached the conclusion that the split would increase GM Korea’s value, improve the debt ratio, and cut costs. It signaled its support for the spinoff and paid out 400 billion won (US$355 million) as the remaining half of its pledged investment before the end of the year, while GM Korea asked its US headquarters for guarantees to its continued operation in South Korea.

In a press conference on Dec. 18, KDB explained that GM headquarters had “agreed to designate the new company as a key R&D base for compact sport utility vehicles (SUVs) and crossover utility vehicles (CUV), ensure additional R&D [efforts], and work to ensure sustainability over the next decade and beyond.” KDB President Lee Dong-gull said, “The R&D company will come out stronger, and it will also help the production entity.”

Lee also said KDB would hold on to second-large shareholder status for both companies after the split. In a press release, GM Korea said the new GM Technical Center Korea would “lead global development of next-generation compact sport utility vehicles and new crossover utility vehicles for which production has been assigned to GM Korea.” It also predicted that South Korean partner companies would “gain opportunities to supply even more parts.”

While executives at GM headquarters have ostensibly made a pledge to maintain operations in South Korea, it is frankly difficult to accept that at face value. This doubt is stemmed in all the ways GM has behaved to date. After abruptly closing its plant in Gunsan last February, GM approved the corporation spinoff at an ad hoc general shareholders’ meeting last October over vehement objections from KDB and the labor union. Time and again, it has eroded trust with actions that invite accusations of “dining and dashing.” We hope that this time at least GM headquarters will adopt an on-the-level approach for the sake of normalizing GM Korea’s management situation. KDB also needs to actively use its authority as second-large shareholder to play its role fully in terms of control and oversight so that GM headquarters keeps its promise.

The GM Korea labor union remains distrustful of GM headquarters and has objected strongly to the spinoff, with plans for a strike on Dec. 19. GM needs to spare no efforts when it comes to having adequate dialogue with the union and seeking its understanding.

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