Published: Tue, April 24, 2018
Markets | By Erika Turner

GM Korea Reaches Tentative Wage Deal With Union, Avoids Bankruptcy

GM Korea Reaches Tentative Wage Deal With Union, Avoids Bankruptcy

To keep its Korean unit afloat, GM is seeking investment and tax incentives from South Korea's government, which controls the Korea Development Bank.

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 union agreed to a pay freeze, benefit cuts, and no 2018 bonuses. The staff buyouts and plant closure is not related to the cost cutting deal with the union.

GM Korea warned late last week that unless an understanding is reached, it will convene a board meeting on Monday and decide on whether to place the cash strapped company under court protection.

In the event that GM Korea posts profits as a result of the restructuring plan, the company and the union will be able to offer lump sum payments to workers, the company said.

After weeks of negotiating, GM Korea and its labor unions have reached a tentative deal.

Korea, which includes four auto assembly plants and four engine plants, has been losing money for years.

"Ratification of the tentative agreement is critical to our viability plan and securing support of the Korean government and our shareholders, KDB and GM", GM Korea CEO Kaher Kazem said in a statement.

"This will influence further labor conflicts and activities case by case depending on how bad the situations are for companies or how the global economy goes".

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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 other things. The unit lost 148 billion South Korean won a year ago, or about $139 million.

State-run KDB is GM Korea's second-largest shareholder with a 17 percent stake.

The company had originally set the deadline for an agreement from the union at midnight Friday, but it was delayed to 5 p.m. Monday after Finance Minister Kim Dong-yeon urged the two sides to find common ground through "swift but honest dialogue" and to avoid jeopardizing 150,000 local jobs at the carmaker and its subcontractors.

GM restructured its Thai operations, and ceased production in Indonesia and Australia.

Even the US auto maker owns nearly 3 quarters of GM Korea while the Korea Development lender owns a 17 percent stake in the company.

KDB's chairman last week told reporters that the lender might sign a preliminary agreement by Friday to provide financial support for the business should an interim due-diligence report that was due on Friday last week turn out to be satisfactory. That had been a major market for its Korean exports. It said it would speed up due diligence under way to find ways to put GM Korea on track for recovery.

Korea has about 16,000 staff and about 300 dealerships within the nation.

The unit still makes more than 1 million assembled or partially assembled vehicles for the US, 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.

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