GM Korea drops bankruptcy vote plan after
last-minute wage deal
Send a link to a friend
[April 23, 2018]
By Hyunjoo Jin and Ju-min Park
SEOUL (Reuters) - General Motors Co's (GM)
South Korean unit dropped a plan to consider filing for bankruptcy after
winning concessions on pay, bonuses and benefits from its labor union in
a tentative deal reached on Monday.
The deal will pave the way for nearly $500 million in fresh capital
injection by the South Korean government, providing much-needed
liquidity to GM Korea to pay employees and its suppliers, but slumping
vehicle sales and low factory run-rates raise questions about its
The concessions by GM Korea's powerful auto union are expected to heap
pressure on other auto unions for similar moves, at a time when South
Korea's auto industry is grappling with higher labor costs and sluggish
demand from the United States and other markets.
"Through the latest agreement, GM Korea will be a competitive
manufacturing company," Kaher Kazem, chief executive of GM Korea, said
in a statement in Korean.
GM shocked South Korea in February when it unveiled a major
restructuring plan for the money-losing unit, which involved shuttering
one of its four plants in the country and voluntary redundancies for
The automaker had sought wage concessions from the union as well as
government funding and incentives to save its remaining three South
The board of GM Korea delayed a decision on whether to file for
court-managed bankruptcy protection until Monday evening after the
automaker failed to reach a wage deal with its labor union in time to
meet a Friday deadline.
The union accepted the company's request to freeze base wages and skip
bonuses for this year as well as trim benefits, according to the
agreement seen by Reuters.
Future base wage increases and performance pay "will be dependent upon
the company regaining profitability", while the base wage rises will not
exceed inflation, it said.
Regarding its 680 remaining workers at the Gunsan factory, which is
scheduled to be shuttered in May, the company will "implement options
including a voluntary redundancy program and transfers" to other plants
to avoid layoffs.
"The labor union made huge concessions to save the company," Hong
Young-pyo, a lawmaker of the ruling Democratic Party who mediated the
agreement, said at a news conference after the deal.
The union was absent from the press conference where Hong and GM
executives were present.
A union spokesman declined to comment, saying union members are expected
to vote on the preliminary deal on Wednesday and Thursday.
"Clearly it sets an example that a labor union cannot help but make
concessions to overcome its company's crisis," Kim Soo-wook, a professor
of operations management at Seoul National University, said.
"This will influence further labor conflicts and activities case by case
depending on how bad the situations are for companies or how the global
[to top of second column]
Kaher Kazem (L), chief executive of GM Korea, and Barry Engle (2nd
L), head of GM's international operations, attend a news conference
in Incheon, South Korea, April 23, 2018. Yonhap via REUTERS
Hyundai Motor, South Korea's biggest automaker, is bracing for its
annual talks with its labor union, after it posted a fifth straight
drop in annual earnings last year as a lack of sport utility
vehicles in the United States and a diplomatic row with China hurt
Adding further pressure on Hyundai, U.S. activist hedge fund Elliott
Management said on Monday a restructuring plan proposed by the auto
group to end circular shareholding structure was not enough, and
recommended it create a holding company and increase dividend, among
The deal would pave the way for the Korea Development Bank (KDB)
[KDB.UL] to provide support and for GM to allocate two new models to
South Korea to help turn around GM Korea, the unit said in a
State-run KDB is GM Korea's second-largest shareholder with a 17
percent stake. The U.S. automaker owns 77 percent of GM Korea, while
GM's main Chinese partner, SAIC Motor Corp Ltd, controls the
remaining 6 percent.
The government had stepped up pressure on GM and the union to reach
an agreement, saying without a swift deal some 150,000 jobs at the
automaker and its suppliers would be at risk.
GM Korea still needs to negotiate with KDB on terms of the latter's
financial support to the unit, while trying to secure tax and other
incentives from the industry ministry. KDB's chairman told Reuters
last week the lender may sign a preliminary agreement by April 27.
Some analysts said the fate of GM Korea is still uncertain.
The unit's strength is small cars but GM is scaling down its
presence in that segment, said Lee Hang-koo, a senior research
fellow at Korea Institute for Industrial Economics & Trade. “GM has
extended the lifeline of GM Korea, but not sure how long it will
The South Korean unit, once the backbone of GM's Asian strategy, has
been hobbled by labor costs and hurt by the automaker's decision to
pull its Chevrolet brand from Europe, a key export market. It posted
a net loss of $1.1 billion in 2017, its fourth straight year in the
The unit still makes more than 1 million assembled or partially
assembled vehicles for the United States, European and emerging
markets. It is also an engineering and design source for GM's small
vehicles and electric vehicles, as well as home to some of GM's
top-ranked suppliers globally.
(Reporting by Hyunjoo Jin; Additional reporting by Ju-min Park and
Haejin Choi; Editing by Jacqueline Wong and Muralikumar
[© 2018 Thomson Reuters. All rights
Copyright 2018 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.