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GM to Invest $7.3 Billion in South Korean Unit

02/22/2013 | 06:45am US/Eastern
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BUPYEONG, South Korea--General Motors Co. (>> General Motors Company) has announced plans to invest 8 trillion won ($7.3 billion) in GM Korea Co. over the next five years, as it seeks to assure the market that it is committed to keeping operations in Asia's fourth-largest economy.

Its announcement comes amid speculation that GM might reduce the functions of its Korean plants, stripping their research and development functions and narrowing them to a manufacturing base for global exports. This could affect 3,500 engineers employed in the R&D department.

In a press briefing held Friday in Bupyeong, South Korea, GM International Operations President Tim Lee said the "huge" investment will go into developing six all-new vehicles, bolster dealerships and improve production and design facilities.

But the executive didn't elaborate on how the money will be divided, and also didn't mention any details for the planned models.

In the past 10 years, the Detroit-based carmaker has invested an average of KRW1 trillion each year in its 76.9%-owned Korean unit.

GM Korea is currently in talks with Korea Development Bank to buy back a 17.08% stake in GM Korea from the state-run bank, which had sparked market chatter that the auto company might be seeking to make an exit. It also cut about 8% of its workforce last year, and won't roll out the next-generation version of the Chevrolet Cruze compact starting from 2014 in its Gunsan plant.

But regarding the stake purchase issue, Mr. Lee said the company had to buy it back "eventually."

"We have simply chosen to do so to redeem our shares," he said, asking reporters to interpret it nothing other than a transaction.

He also said that starting from the second quarter, GM Korea will start producing the electric version of the Chevrolet Spark mini car in its Changwon plant for the use of government organizations.

Currently, GM Korea is in charge of the production of one fourth of vehicles carrying the Chevrolet marque for its parent company and exports eight out of 10 vehicles built in its domestic plants--Bupyeong, Gunsan and Changwon.

The company sold a total of 800,639 vehicles last year, down 0.9% from a year earlier due to sluggish domestic sales and as a strong won cut into its overseas earnings when repatriated into the local currency. In the domestic market, its shares rose slightly to 9.5% last year from 8.9% a year ago, supported by the weak performance of its peer Renault Samsung Motors.

Mr. Lee cited keeping "collaborative" relations with its union and strengthening in the Korean won as major challenges for GM Korea this year.

GM Korea produces nine Chevrolet models, including the Spark mini car and the Orlando seven-seat recreational vehicle, from its domestic plants for local sales and exports.

The company also makes the Alpheon largesize sedan and the Damas and the Labo mini commercial cars that don't carry the Chevrolet badge, though it recently decided not to produce the mini cars due to low profitability.

Separately, it has recently strengthened the Cadillac lineup with the Cadillac ATS sedan to benefit from the free trade agreement with the U.S. and a growing demand for imported cars in Korea.

Imported carmakers held 10% of the South Korean passenger car market last year, which forced Hyundai Motor Co. (>> Hyundai Motor Co) and Kia Motors Corp. (>> Kia Motors Corporation), the country's dominant carmakers, to cut prices on their flagship models.

Write to Kyong-Ae Choi at kyong-ae.choi@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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