GM Korea Takes Bankruptcy Off the Table After Last-Minute Wage Agreement

It has been a tense couple of months at GM Korea. Back in February, the company announced a restructuring plan for the division which included the closure of the Gunsan plant (one of the four plants operating in South Korea), and voluntary redundancies for 2,600 workers to stem the hemorrhaging of cash. Recently, GM has been pushing its workers’ union for concessions that would total $80 million. This is part of an effort to get a $500 million injection from the South Korean government to pay suppliers and workers. The workers union weren't buying, threatening to strike and trashing company executive offices earlier this month. Then GM threw down the gauntlet, either agree to the concessions by April 20th or we begin bankruptcy proceedings.

“Without concessions from the labor union and clear resolution from stakeholders, the company has no choice but to go ahead with rehabilitation proceedings,” said GM Korea executive Kaher Kazem in an email to employees.

Unfortunately, the date passed with no agreement and it seemed bankruptcy was on the horizon. But both GM and union rep would continue to talk over the weekend to see if a deal could be reached. At the 11th hour, an agreement was reached.

“Through the latest agreement, GM Korea will be a competitive manufacturing company,” said Kazem in a statement today.

According to Reuters who got to see the deal, the union agreed to freeze base wages, skip bonuses for this year, and cut back on benefits.

“The labor union made huge concessions to save the company,” said Hong Young-pyo, a lawmaker of the ruling Democratic Party who worked on the mediation between the two groups.

A union spokesman declined to comment when contacted by Reuters, only saying that workers will vote on the agreement later this week.

The deal now allows the Korean government to fund Korea Development Bank (KDB) - the second largest shareholder in GM Korea - to provide support. It also allows GM to allocate two new models for the region. But some analysts are still uncertain as to the future of GM Korea. Labor costs, poor sales, and expensive export costs have some wondering if GM is in it for the long run or are planning an exit strategy.

“GM has extended the lifeline of GM Korea, but not sure how long it will last,” said Lee Hang-koo, a senior research fellow at Korea Institute for Industrial Economics & Trade.

Source: Reuters