S. Korean Court Rules Against GM Korea's R&D Separation | Be Korea-savvy

S. Korean Court Rules Against GM Korea’s R&D Separation

(image: KobizMedia/ Korea Bizwire)

(image: KobizMedia/ Korea Bizwire)

SEOUL, Nov. 28 (Korea Bizwire)A Seoul court on Wednesday ruled against GM Korea Co.’s proposal to establish a separate R&D company in a setback for parent firm General Motors Co.’s broad reorganization plan for its global operations.

Last month, the state-run Korea Development Bank (KDB), the second-biggest shareholder in GM Korea after GM, filed an injunction against the company’s R&D separation move as prior agreement had not been attained.

The union has strongly opposed the plan as they regard the setting up of GM Technical Center Korea, Ltd. as a preliminary step by GM to scale down production facilities in South Korea.

In its ruling, the Seoul High Court said mergers and acquisitions of companies and the establishment of new business entities require approval by over 85 percent of a company’s common stock holders.

But 82.9 percent of common stock holders voted for the plan last month at a shareholder meeting. As it is a clear violation of the company’s articles of association, GM Korea will not be allowed to push forward the R&D separation plan, the ruling said.

GM Korea was planning to establish the GM Technical Center Korea on Dec. 3.

In a letter sent to employees last month, GM Korea President and Chief Executive Kaher Kazem said that the establishment of GM Korea Technical Center will help the carmaker focus more on local manufacturing, exports and domestic sales.

“If GM Korea does not accept the ruling, it will be able to file an objection to the court. If the objection is rejected, the company can lodge a complaint against the high court’s decision with the Supreme Court,” Chung Ji-young, a spokeswoman for the high court, said over the phone.

In response to the court decision, GM Korea said it was disappointed and “respectfully” disagreed with the court’s decision on the appeal by the KDB.

“We are reviewing all of our appeal options and remain committed to establishing the stand-alone GM Technical Center Korea to better position our operations for future work,” the company said in a text message.

GM Korea reiterated its stance toward the R&D entity, saying the establishment of the GM Technical Center Korea strengthens GM Korea’s viability plan and is in the best interest of the company and its stakeholders, including the union, all of GM Korea’s shareholders and the Korean automotive suppliers.

The company’s union, meanwhile, welcomed the court decision.

“We think the court made the right decision. We want the company to abandon the R&D separation plan and consult with the union to seek sustainable growth of GM Korea,” a union spokesman said.

GM holds a 77 percent stake in GM Korea, with the KDB and SAIC Motor controlling 17 percent and 6 percent, respectively.

In May, GM and the KDB signed an agreement to permit a lifeline worth a combined 7.7 trillion-won (US$6.7 billion) — 6.9 trillion won from GM and 810 billion won from the KDB — to keep the money-losing Korean unit afloat.

In the 2014-2017 period, GM Korea posted 3.134 trillion won in accumulated net losses due to a lack of new models and weaker demand.

In the same month, the Detroit carmaker shut down one of its four car assembly plants in Korea due to a low utilization rate of 20 percent.

On Monday, GM announced a major restructuring of its global operations. The measures include the shutdown of five plants in North America and a 15 percent reduction in its salaried workforce.

The steps appear to be part of GM’s preemptive efforts to take the lead in a rapidly changing market, where the trend is away from gasoline and diesel-powered traditional vehicles toward self-driving and electric cars.


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