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A promising start (KOR)

Feb 02,2019
The so-called Gwangju business model is finally taking off after nearly five years of negotiations. The metropolitan government of Gwangju and the country’s largest automaker Hyundai Motor signed an agreement to establish a finished car assembly line in the city.

The last production lines for finished cars in Korea were built in Busan in 1988 by Renault-Samsung. The establishment of the first new vehicle plant in 22 years comes at a time when local manufacturers have been taking their bases overseas due to a worsening business environment at home, wrecking jobs and regional economies. The new business model also takes place in the automobile sector, where militant unions dominate.

The Gwangju project struggled in December when a deal seemed to be so close, but there was strong opposition from the union. The labor sector protested the wage terms — 35 million won ($31,432) for the full first year — as well as the validity date of the agreement under the labor-management council. The union, however, changed its mind and backed the project without conditions.

Under the agreement, the starting pay for factory workers is set at 35 million won. The decisions made by the council including the wage terms will stay intact until the cumulative shipments from the factory reach 350,000 units.

Since the new plant to be built in Gwangju will have an annual capacity of 100,000, the management won’t have to fret about labor negotiations for at least three to four years.

The agreement was possible due to the open-mindedness of the Federation of Korean Trade Unions. But the outlook is not entirely optimistic. Hyundai Motor will chip in 53 billion won ($47 million), just 19 percent of the necessary funding for the automaking factory. The contract with Hyundai Motor is valid for five years, which means the factory must find sustainable work elsewhere afterwards.

The demand for compact vehicles has been sliding since 2012. How competitive and lasting the plant can be by rolling out small SUVs remains in doubt. The Gwangju business model must solve these challenges so that such similar ventures can spread to other regional areas and make jobs across the nation.

JoongAng Ilbo, Feb. 1, Page 26