GM Korea drops bankruptcy vote plan after last minute wage deal

SEOUL: General Motors Co’s (GM) South Korean unit dropped a plan for a vote on a bankruptcy filing after reaching a tentative wage deal with its labour union that helped the US automaker win concessions on pay, bonuses and benefits.

GM shocked South Korea in February when it unveiled a major restructuring plan for the money-losing unit, which involved shuttering one of its four plants in the country and voluntary redundancies for 2,600 workers.

The automaker had sought wage concessions from the union as well as government funding and incentives to save its remaining three South Korean factories.

The board of GM Korea delayed a decision to file for court-managed bankruptcy protection until Monday evening, after the automaker had failed to reach a wage deal with its labour union in time to meet a Friday deadline. “Through the latest agreement, GM Korea will be a competitive manufacturing company,” Kaher Kazem, chief executive of GM Korea, said in a statement in Korean.

The deal would pave the way for the Korea Development Bank (KDB) to provide support and for GM to allocate new models to South Korea to help turn around GM Korea, the unit said in a statement.

KDB is GM Korea’s second-largest shareholder with a 17% stake. The US automaker owns 77% of GM Korea, while GM’s main Chinese partner, SAIC Motor Corp Ltd, controls the remaining 6%.

The government had stepped up pressure on GM and the union to reach an agreement, saying without a swift deal some 150,000 jobs at the automaker and its suppliers would be at risk. GM Korea still needs to negotiate with KDB on terms of the latter’s financial support to the unit, while trying to secure tax and other incentives from the industry ministry.

KDB’s chairman told Reuters last week the lender may sign a preliminary agreement by April 27 to provide financial support for the business should an interim due-diligence report that was due last Friday turn out to be satisfactory. The status of the report could not be immediately ascertained.

The union accepted the company’s request to freeze base wages and skip bonuses for this year as well as trim benefits.

Future base wage increases and performance pay” will be dependent upon the company regaining profitability”, while the base wage rises will not exceed inflation, according to the agreement seen by Reuters.

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.