GM’s R&D company plan violates MOU with gov’t: lawmaker

October 10, 2018

SEOUL, Oct. 10 (Yonhap) — General Motors Co. is set to violate an initial agreement signed between the carmaker’s South Korean unit and the South Korean government by attempting to establish a separate R&D corporation, a lawmaker said Wednesday.

In his policy review submitted as part of a parliamentary audit, Jung You-sub, a representative of the main opposition Liberty Korea Party, said the U.S. carmaker is pushing forward a plan to spin off its design and engineering divisions into a separate R&D-focused corporation without any consultation with the Ministry of Trade, Industry and Energy.

“To strengthen its R&D capabilities, GM is required to consult with the ministry in advance under the memorandum of understanding (MOU) signed in May,” Jung said. In April, GM proposed setting up a separate R&D entity as part of restructuring measures but it was not included in the MOU due to opposition from GM Korea’s union, he added.

Under the MOU between GM and the ministry, the Detroit carmaker agreed to strengthen GM Korea’s mid and long-term competitiveness, allow the Korean unit to develop core auto parts and help local parts suppliersgrow in a win-win partnership, he said.

The Trade, Industry, Energy, SMEs, and Startups Committee under the National Assembly called on GM Korea President and Chief Executive Kaher Kazem to attend the audit Wednesday and explain the R&D corporation issue, but he did not show up.

In a statement regarding his absence, the CEO argued his participation in the audit could affect an ongoing legal dispute with the state-run Korea Development Bank (KDB) over the R&D entity, a GM Korea spokesman said.

Lawmakers have asked the National Assembly to call Kazem to a general audit on Oct. 29.

KDB, the second-biggest shareholder in GM Korea after GM, has recently filed an injunction against the shareholders’ meeting scheduled for Oct. 19 with a local court.

The move comes after GM Korea’s board of directors last week gave the go-ahead to the R&D corporation plan in which a design center, a research center and a powertrain division in Bupyeong, just west of Seoul, are integrated into a separate business entity as part of restructuring efforts.

GM Korea said the planned R&D company will carry out design and development work for GM’s best-selling midsize sport utility vehicles.

GM Korea’s union sees the move as an initial step to maintain the new corporation as one of GM’s R&D bases, while selling or shutting down its production facilities in the country in the long term.

GM Korea’s board is composed of seven GM Korea executives and three officials from the KDB, the main creditor bank of the carmaker. The three KDB directors opposed the spinoff plan last week.

Also Wednesday, KDB Chairman Lee Dong-gull said in parliament that the state lender will exercise its veto over GM Korea’s move to create the R&D entity in the shareholders’ meeting, even if the court rejects the injunction.

In May, GM and the KDB, the two biggest shareholders in GM Korea, signed an agreement to permit a combined 7.7-trillion-won lifeline — 6.9 trillion won from GM and 810 billion won from the KDB — to keep the loss-making Korean unit afloat.

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

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

In the 2014-2017 period, GM Korea posted 3.134 trillion won (US$2.9 billion) in accumulated net losses due to a lack of new models and weaker demand.