GM Korea drops bankruptcy filing plan after wage deal

SEOUL: General Motors Co’s South Korean unit dropped a plan to consider filing for bankruptcy after winning concessions on pay, bonuses and benefits from its labour union in a tentative deal reached yesterday.

The deal will pave the way for nearly $500 million in fresh capital injection by the South Korean government, providing much-needed liquidity to GM Korea to pay employees and its suppliers, but slumping vehicle sales and low factory run-rates raise questions about its longer-term future.

The concessions by GM Korea’s powerful auto union are expected to heap pressure on other auto unions for similar moves, at a time when South Korea’s auto industry is grappling with higher labour costs and sluggish demand from the United States and other markets.

“Through the latest agreement, GM Korea will be a competitive manufacturing company,” Kaher Kazem, chief executive of GM Korea, said in a statement.

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 on whether to file for court-managed bankruptcy protection until yesterday after the automaker failed to reach a wage deal with its labour union in time to meet a Friday deadline.

The union accepted the company’s request to freeze base wages and skip bonuses for this year as well as trim benefits, according to the agreement seen by Reuters.

“Future base wage increases and performance pay will be dependent upon the company regaining profitability, while the base wage rises will not exceed inflation,’’ it said.

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 lay-offs.

“The labour union made huge concessions to save the company,” Hong Youngpyo, a lawmaker of the ruling Democratic Party who mediated the agreement, said at a news conference after the deal.

The union was absent from the press conference where Hong and GM executives were present.

A union spokesman declined to comment, saying union members are expected to vote on the preliminary deal on Wednesday and Thursday.

Hyundai Motor Co, South Korea’s biggest automaker, is bracing for its annual talks with its labour union.