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GM’s role is crucial

Apr 24,2018
The management and labor of GM Korea have avoided putting the embattled company into a court receivership after striking a deal on a provisional plan to keep the local carmaker afloat. Management withdrew its idea of enforcing a long-term non-paid leave on more than 600 workers at its Gusan factory in North Jeolla in return for the union’s acceptance of a wage freeze and non-payment for workers’ performance-based benefits. Labor and management agreed to discuss ways to put the troubled company back on track by setting up a committee for a better future and a special committee to determine the fate of its assembly line in Bupyeong, Gyeonggi. If union members vote for the self-rescue plan tomorrow and Thursday, the last-minute deal will go into effect.

Fortunately, the management and labor reached a compromise before it was too late. But it is regrettable that both sides once again resorted to their signature brinkmanship without demonstrating mature attitudes in the face of its insolvency crisis. The deal between labor and management also affirmed that they can hardly expect the so-called political resolution of labor disputes, as seen in the cases of Kumho Tire and STX Offshore and Shipbuilding. Labor and management who are undergoing corporate restructuring must learn a lesson from the last-ditch bilateral agreement in GM Korea.

Both sides have passed an imminent crisis, but they have to wait for the results of a negotiation between General Motors (GM) and the government and the Korea Development Bank (KDB). Pending issues are how to convert the money GM lent to its subsidiary into capital for GM Korea and how to achieve the so-called graded capital reduction. Without the process of decreasing the company’s shareholder equity through share cancellations and share repurchases, the KDB’s share dwindles to less than one percent when GM converts its loans into capital. If that happens, KDB loses any checking apparatus vis-à-vis the Detroit-based carmaker. Given the repercussions from global hedge funds’ investments in Korean companies, a mechanism aimed at putting the brakes on malpractice is needed.

In its mid-term report on the financial health of GM Korea, KDB expected the company to be able to see a dramatic turnaround if its management plan is carried out successfully following the agreement between management and labor, but it is too early to raise high expectations. Unless GM Korea’s operation is backed by GM’s active support and effective management strategies, a crisis can revisit the company at any time.

JoongAng Ilbo, April 24, Page 30