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GM Korea negotiations collapse on deadline day

Mar 31,2018
The seventh round of negotiations between beleaguered GM Korea and its labor union failed to come to any agreement Friday, possibly dooming the Detroit auto giant’s turnaround plan.

The deadline given by the U.S. headquarters to the Korean unit was until the end of March to at least come up with a temporary agreement between management and the union.

“The company and the union couldn’t bridge the differences and plan to schedule an additional negotiation session,” the company said.

“We deeply regret that the agreement could not be reached by the deadline, making it more difficult to resolve the liquidity problem,” it added. “The company will roll out an extreme management system to come up with a back-up plan.”

The union refused additional cuts in benefits proposed by the company after agreeing to freeze this year’s wages and cut down on incentives.

The failure has put the Korean affiliate in a tight spot.

“Allocation of new models [to be made in Korea] is one of the most vital factors in turning around the profitability of GM Korea and such plans are usually made around February and March by the Detroit headquarters,” said one industry source who asked not to be named. “General Motors’ patience had probably hit its limit.”

GM Korea is also headed into a liquidity crunch. By April 6, the company promised to pay some 72 billion won ($67.8 million) to its employees as incentive payments, followed by additional severance payments promised to voluntary retired workers by the end of April. It promised the voluntary retirees a two to three-year annual salary package and some 2,500 people signed up for the packages.

The maturity date on a 720 billion won loan from the headquarters to GM Korea is by the end of March, followed by an additional 988 billion won by early April.

Without an injection of state fund or aid from the U.S. headquarters, there is no way that GM Korea will be able to come up with the required money on its own.

Kaher Kazem, GM Korea’s CEO, had urged the union to settle on an agreement on Wednesday evening.

“If we fail to agree by the end of March, GM Korea will not be able to secure the additional funding from our shareholders needed to meet all commitments in early April,” Kazem said in an email.

“As was communicated earlier, our current cash forecast indicates we will not be able to meet all required payments including a second lump sum payment due on April 6. In addition, any further delays will put at risk the necessary proper due diligence process, which is also dependent on an agreed competitive cost structure from the 2018 Wage and CBA [collective bargaining agreement] negotiations,” it added.

General Motors has to submit a turnaround plan to the Korean government by April 20.


BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]