SEOUL, May 13 (Korea Bizwire) — GM Korea Co. aims to return to profit next year as the South Korean unit of General Motors Co. expects investment in new vehicles and reduced debts will help improve its financial status, the company said Saturday.
In the four years through 2017, GM Korea posted more than 3.134 trillion won (about US$2.8 billion) in accumulated net losses due to a lack of new models and lower demand. The company didn’t elaborate on whether the profit would be net or operating profit.
In its viability plan released Friday, GM Korea said it will invest US$2.8 billion in “two new global vehicle programs” in the next 10 years and reduce its existing debt by about $2.8 billion through a debt-for-equity swap this year.
“On top of the planned debt-to-equity conversion, the company will be able to prop up its financial health further as its operating costs are expected to decrease by 400 billion-500 billion won a year due to reduced workforce and reduced debt,” a company spokesman said over the phone.
The positive outlook on GM Korea comes after GM and the state-run Korea Development Bank (KDB), the two biggest shareholders in the Korean unit, signed a “breakthrough binding agreement” that will allow a $7.15 billion lifeline to the financially troubled unit.
GM owns a 77 percent stake in GM Korea, while the KDB and SAIC Motor Corp. control 17 percent and six percent, respectively.
Under the deal, GM is banned from selling any of its stake in GM Korea before 2023 and is required to keep its stake in the Korean unit at above 35 percent until 2028.
The Detroit carmaker plans to convert $2.8 billion worth of debt owed by GM Korea into shares and extend loans worth $3.6 billion to the local unit for vehicle and facility investment. The KDB plans to extend a fresh loan of $750 million to GM Korea.
“Together with the KDB, the Korean government, the labor union and our supplier partners, we have created all of the building blocks for executing a long-term viability plan that will be good for our people, good for our company and good for Korea,” GM Executive Vice President Barry Engle said in a statement.
Vowing to hold large-scale customer-focused marketing and sales activities to revive its fortunes, Kaher Kazem, president and chief executive of GM Korea, said “GM Korea now has the right fundamentals to grow a successful business in Korea for the long term.”
In other efforts to show its long-term commitment to growth in Asia’s fourth-biggest economy, GM said it will establish an Asia-Pacific headquarters in Korea and push for the manufacturing of core auto components in its Korean design and technology center.
The U.S. carmaker plans to engineer and manufacture a small, three-cylinder gasoline engine in Korea for next-generation global vehicles, the statement said.
It will also collaborate with the Seoul government on research and development for key technologies for future vehicles, including autonomous driving and electric cars, it said.
GM Korea’s turnaround largely depends on demand for its vehicles. As local sales of GM cars have remained weak in recent years, it remains to be seen whether GM’s viability plan will work.
From January to April, GM Korea’s vehicle sales fell 17 percent to 158,961 vehicles from 192,221 units in the same period a year earlier. It faces tougher competition from domestic and imported carmakers, which latter claimed a market share of nearly 19 percent in the local passenger car market in the first four months.