The average hourly wage of workers at the “Big Three” U.S. automakers including General Motors (GM) was 73.2 U.S. dollars (with the overhead cost such as employee benefits counted) in 2007, higher than that of the top three Japanese carmakers in the United States, 47.6 dollars, by 54 percent. Such a structure with high labor costs was one of the main reasons that led GM to lose its competitiveness over time.
In an effort to overcome a challenging situation, GM decided to focus on pickup trucks and full-size cars in the United States and move the production of most compact cars to facilities in South Korea. This is how GM Korea came to play the role of “cash cow” while GM headquarters was struggling to tackle the crisis.
As the major U.S. automakers were skidding into the red, GM’s labor union agreed to the two-tier wage system in 2007. The system divided workers into two groups with different wages, where new hires in a lower, second tier, were paid at half the hourly wage rate of veteran workers in the top tier. Whereas Korea’s major carmakers including GM Korea have maintained a single-tier pay system, GM reached an agreement with its union back then on a wage freeze until 2015 along with the establishment of two-tier system.
Following GM’s 2009 bankruptcy, the U.S. government demanded a stringent restructuring under the condition of providing financial support. As a result, GM had to shed 12 percent of its production workers, 7,500 employees, in March that year. The company’s union also conceded to the reduction of the existing, rather excessive welfare benefits, as well as more flexible working arrangements. There was no longer a limit on the mobilization of an external workforce or additional work, thus the company was able to respond to the market’s demands with increased agility by, for example, hiring temporary workers. What was also different from GM Korea’s labor union was that it allowed the headquarters to decide on its own as to the reassignment of workforce at production lines or facilities. With its severe restructuring, GM started to gradually recover. The automaker’s production output in the United States grew from 1.19 million units in 2009 to 2.10 million units in 2014.
GM Korea should learn a lesson from the story of GM USA overcoming a crisis, some industry watchers say. They say GM Korea’s labor union needs to take a more flexible attitude. Also criticized by the public is a provision still put in place in GM Korea’s collective agreement that allows special recruitment of children of existing workers, which is often denounced as “a modern version of Eumseoje,” a system during the Goryeo Dynasty that allowed high-ranking government officials to introduce their children into government service without having to pass the civil service examination.
Woo-Shin Han email@example.com · Sung-Yeol Yoo firstname.lastname@example.org