General Motors Co. will establish an Asia Pacific headquarters in South Korea and push for the manufacturing of key auto parts in its local design and technology center as part of its effort to show long-term commitment to growth in the country, Seoul's commerce ministry said Thursday.
Paik Un-gyu, South Korean minister of trade, industry and energy, and GM International President Barry Engle signed a memorandum of understanding (MOU) on cooperation for development of South Korea's auto industry.
"GM will newly establish an Asia Pacific headquarters in South Korea and push to make GM Korea the hub for manufacturing, sales and technology development," Paik said during the signing ceremony.
The MOU was signed shortly after the Seoul government and the American automaker reached a final agreement on a US$7.15 billion rescue plan for its local unit, which includes a condition requiring the Detroit-based carmaker to stay in the country for at least 10 years.
Under the agreement that will be signed on Friday, GM will convert $2.8 billion worth of debt owed by GM Korea Co. into shares and extend loans worth $3.6 billion to the local unit for facility investment. State-run Korea Development Bank (KDB), the second-largest shareholder of GM Korea, will inject $750 million to keep the automaker afloat.
The carmaker has an international headquarters in Singapore, which oversees markets such as South Korea, India and Southeast Asia, but it reduced staff last year as part of global restructuring. If established, GM's Asia Pacific office will manage businesses in countries in the region except for China, the ministry said.
"I am looking forward to a very bright future for the role of General Motors here in Korea," Engle said. "We still have a lot of work to do."
Under the MOU, the ministry and GM Korea agreed to collaborate on research and development (R&D) for key technologies for next-generation vehicles, including autonomous driving and electric vehicles. The company, moreover, said more will be done to expand purchases of auto parts from local suppliers.
Engle said GM wants to take advantage of skillful Korean engineers and local supply chains to develop electric vehicles and hopes to regain consumer confidence in the local market.
GM's vehicle sales in the Korean market plunged 54 percent on-year to 5,378 units in April in the aftermath of the planned closure of the underutilized factory in Gunsan.
"I know our Korean engineers will be the excellent forefront in these technologies and continue to push the whole industry forward," Engle said. "I assure you that we're here for a long time, and we are ready to support your needs and encourage (you) to take a test drive and see for yourself what a great Chevrolet vehicle and a Cadillac looks like."
While the size and schedule of the new regional office is currently under negotiation, Seoul officials expressed hope that the Asian Pacific office will help the Korean unit play a greater role in manufacturing major models and development of advanced technologies.
"The establishment of the regional head office shows GM's long-term commitment to its Korean business," Paik told reporters. "It is expected to help GM Korea have a say when GM headquarters assigns new car models and makes other important business decisions."
GM Korea has served as a key export hub for the U.S. and other countries, but local production fell off after GM decided in 2013 to pull its Chevy brand from Europe.
Last year, GM Korea produced 520,000 vehicles at all its car assembly plants in Asia's fourth-largest economy. The company currently has a combined annual capacity of 910,000 units.
As a way to maintain its Korean business, GM has offered to produce two new models in South Korea to secure a production capacity of about 500,000 units per year.
While GM Korea has asked the Seoul government to designate its factories as foreign investment zones, the ministry said it will have to submit a revised application, as the new investment amount and funding method has changed in the negotiation process.
"Once GM submits a revised application for foreign investment zones, we will review it in accordance with local regulations," Moon Seung-wook, a senior ministry official, said.
If the plants are designated as foreign investment areas, GM Korea will be exempt from corporate taxes on its profits for the first five years and then pay only 50 percent corporate tax for the following two years.(Yonhap News)