(Bloomberg) -- General Motors Co (NYSE:GM). has offered a $2.8 billion new investment plan for its South Korean business after threatening to exit the country amid mounting losses, a lawmaker from the nation’s ruling party said.
The investment, being proposed for the next 10 years in South Korea, is needed to produce new models, for research and development, to renovate facilities and for restructuring the business, said Hong Young-pyo, a ruling party lawmaker from Bupyeong, where GM Korea’s biggest plant is based. The automaker is also considering a $2.7 billion debt-for-equity swap at its Korean unit, Hong said in a phone interview Wednesday.
“We have a product plan for GM Korea which will be decided in March by our headquarters that will come with a significant amount of spending,” a spokesman at the carmaker’s local unit said. “We expect our operations and production to continue smoothly over the next 10 years through the plan,” he said, declining to specify the amount of support GM is seeking from South Korea.
The latest moves come amid a standoff between the U.S. automaker and South Korea after GM said it would shut its assembly plant in Gunsan by the end of May and could leave the country entirely if concessions weren’t made to stem widening losses. GM Chief Executive Officer Mary Barra has been ditching poor-performing business units around the globe to play to the company’s strengths and had warned that its operations in South Korea were in dire need of a turnaround and costs were too high.
Seeking Support
GM Korea’s debt has mounted to about 3 trillion won ($2.8 billion). While GM has yet to specify the amount of support the carmaker is seeking from the Korean government and state-run Korea Development Bank, it’s expected to be around 500 billion won, or roughly the value of KDB’s 17 percent stake in GM Korea, the lawmaker said.
GM’s plan to normalize the business is focused on securing production volumes at its Korean plants, Hong said. The automaker is considering the production of a new SUV at the Bupyeong plant and another model at the Changwon factory, according to Hong, who said he and other lawmakers met GM International chief Barry Engle Tuesday.
The company needs to swap debt for equity to help its turnaround as the size of the accumulated debt means GM has to pay about 200 billion won in interest every year, Hong said.