GM pledges $7.3 billion investment in S. Korea unit

SEOUL (Reuters) -- General Motors said it would invest $7.3 billion in its South Korean unit over the next five years -- an amount which will likely help relieve concerns that the U.S. automaker was set to reduce its presence in the country.

Fears of output cuts and layoffs had grown after GM said it was interested in gaining full control of GM Korea by buying a 17 percent stake from the unit's second-biggest shareholder, Korea Development Bank, a move that was seen as possibly paving the way for restructuring steps. GM owns close to 77 percent of GM Korea, but KDB's shareholding gives the state-run bank the right to veto decisions made by the automaker.

Those worries intensified after GM Korea said late last year it would not build its next-generation Chevrolet Cruze in South Korea, raising the possibility that it might shift assembly to Europe to help boost efficiency at its money-losing Opel unit. The new model is due in the third quarter.

GM CEO Dan Akerson has previously floated the idea that more cost-cutting at the company's Germany-based Opel unit could be accompanied by shifting production to the region from Asia to make European plants more efficient.

'Major role' for Korea

GM said its 8 trillion won investment in improving manufacturing and engineering capabilities underscores South Korea's importance as a key production and development base, even if the domestic market is relatively small.

"GM Korea will continue to play a major role in our global growth plans," Tim Lee, head of international operations at GM, said in a statement.

GM Korea, which has five manufacturing facilities in South Korea, said it will produce six upgraded versions of GM models currently built, including global mini, small and midsize cars. It reiterated it will build GM's first global full battery electric vehicle.

South Korea exports Chevrolet-branded cars to Europe and other regions and accounts for about a quarter of GM's Chevy production globally. It also has design and engineering centers in South Korea, which have developed the Spark and Aveo mini cars and the Trax sport utility vehicle.

GM Korea reiterated a plan to double the size of its design center at its headquarters in Incheon by the end of this year, making it GM's third biggest after the United States and Brazil.

GM, which is the No.3 automaker in South Korea after Hyundai Motor Co. and its affiliate Kia Motors Corp, aims to nearly double its South Korean market share to 20 percent for the mid- and long-term.

Automotive News Europe contributed to this report