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The hard line and bottom line

Mar 10,2018

GM Korea’s management has gone through four rounds of talks with its labor union so far this year, only to confirm their difference in positions on downsizing the Korean operation. The union made hard-line demands, calling for General Motors to cancel closure of the Gunsan factory, assign green car models to the Korean plants and allow the union to participate in the company’s due diligence.

The firm stance resembles the demands that the United Auto Workers made of General Motors more than 20 years ago. GM opted for the strategy of producing parts abroad to lower costs. The auto workers opposed and went on strike in 1998.

The walkout allowed Japanese automakers like Toyota, Honda and Nissan to quietly land in the U.S. market. Some consumers grew tired of the strike. GM, which once took up nearly 50 percent of the market, saw its market share shrink to 28.3 percent by 2002.

GM Korea’s union is fighting firmly and has gone on strike for 31 days in the past two years while the company struggles with deficits. In the same period, the import car market has seen record-breaking sales. In February, Mercedes-Benz sold 6,192 cars in Korea and BMW sold 6,118, more than GM Korea’s 5,804.

Another overlap between GM Korea’s union and the United Auto Workers is that the UAW did not give up their benefits as the management situation worsened. Two notable benefits were the jobs bank program and legacy payments.

The jobs bank allowed workers who were laid off due to technological progress or plant restructuring to receive 85 to 95 percent of wages and benefits for the rest of their lives. Between 2005 and 2008, GM spent $2.1 billion on the program.
The automaker also racked up huge legacy costs covering pensions and health care expenses for retired workers. For that, GM had to raise the price of its cars by an average $1,904.

What about GM Korea? Union members receive an average of 87 million won ($81,000) in wages and 22.59 million won in benefits, according to a JoongAng Ilbo report from Feb. 24. Among GM’s global plants, the Korean operation was rated “red,” meaning lowest competitiveness.

The typical negotiation strategy is demanding more than one expects to receive. However, GM’s headquarters learned 20 years ago how to respond to hard-line demands. It will be the union that suffers if GM Korea misses new car assignments because of excessive demands and delay tactics.

From 2006 to 2009, 65,000 workers, about half of the production workforce at GM, resigned or retired. In 2009, Congress eliminated the jobs bank system through its auto bailout. Measures unfavorable to unions, such as hourly workers and a two-tier wage system, were introduced.

GM Korea’s union needs to think hard about the butterfly effect that the United Auto Workers’ firm stance had 20 years ago.

JoongAng Ilbo, March 9, Page 33

*The author is an industrial news reporter of the JoongAng Ilbo.