A possible inspection into GM Korea’s financial records has been raised amid rumors that the Detroit-based carmaker may leave South Korea if it does not get help from South Korean financial authorities. Such assistance could allow it to maintain its business presence in the country. (Image: Yonhap)
SEOUL, Feb. 12 (Korea Bizwire) – South Korean authorities may look into the accounting records of the local unit of General Motors Co. amid speculation that it has been involved in unfair practices, industry sources said Sunday.
A possible inspection into GM Korea’s financial records has been raised amid rumors that the Detroit-based carmaker may leave South Korea if it does not get help from South Korean financial authorities. Such assistance could allow it to maintain its business presence in the country.
In a parliamentary hearing last year, lawmakers raised questions about the fact that GM Korea borrowed more than 2 trillion won (US$1.8 billion) for the four years through 2016 from GM affiliates and paid “excessive” interest rates worth over 462 billion won in total.
They also took issue with GM Korea having paid tens of billions of won each year to its Detroit-based parent company to help with the global cost of operations.
Moreover, representatives pointed out that GM Korea had posted poor performances by delivering its vehicles at low prices for global sale by GM. The rate of cost to selling price at GM Korea was 94 percent in 2016 and 97 percent in 2015, much higher than the approximate 80 percent at other local carmakers, such as Hyundai Motor Co.
In explanation, GM Korea said it had to borrow the money from GM affiliates at rates of over 5 percent, as the state-run Korea Development Bank (KDB) and other Korean lenders were not willing to extend loans to it due to its unhealthy financial status.
GM Korea said it had annually paid a regular amount of money to GM in return for the parent firm’s purchase, logistics and accounting services for its affiliates around the world.
As for the high rate of cost to selling price, GM Korea said it reflected spending on research and development activities as costs, not assets, driving up the ratio of cost to selling price.
GM has called on the Seoul government to give financial support to its loss-making Korean unit. A capital increase is one of the options that may be considered for GM Korea, according to local media reports, although the company hasn’t confirmed this.
In a parliamentary inquiry Friday, Finance Minister Kim Dong-yeon said the government is looking at “various possibilities” for GM’s Korean unit, which has been struggling with declining sales, mounting debt and rising costs.
The minister didn’t elaborate on what actions would be taken.
Last week, GM Chief Executive Mary Barra said the Korean unit must take steps to be “viable.” Referring to GM Korea, she said, “We’re going to have to take actions going forward to have a viable business.”
Over the past three years, GM has scaled back or shut down businesses in markets such as Russia, India and Indonesia due to poor performance. Last year, the Detroit-based carmaker sold its German unit Opel and U.K. brand Vauxhall to France’s PSA Group for US$2.3 billion.
GM executives have pointed to high manufacturing costs and weak sales of its vehicles in Korea as major obstacles to a continuing business presence here.
In 2017, GM Korea saw its overall sales slump 12 percent, falling to 524,547 vehicles from 597,165 units a year earlier. In January, its sales fell 9.5 percent on-year to 42,402 from 46,842.
GM holds a 77 percent stake in GM Korea and the KDB owns a 17 percent stake in the company, maker of the Cruze and Malibu sedans.
(Yonhap)
