GM Korea and its labor union reached a tentative agreement on Monday before the extended deadline to file for court receivership. By reaching the agreement between management and labor, one of the conditions for government support, GM Korea could avert court receivership. A closer look into the agreement, however, will make you think that the GM Korea issue is just beginning, far from over.
First of all, it still remains murky as to how they will handle the core issue about the remaining workers at the Gunsan factory, who rejected voluntary retirement. The deal keeps the door open for voluntary retirees, but it does not state any clear solution to those who will choose to stay to the end. Both parties agreed to make an addition cut in labor costs, but other agendas still remain for future negotiations.
GM headquarters agreed to allocate new SUV and CUV models to the Bupyeong factory and the Changwon factory, respectively, but specific numbers have yet to be figured out. As to the poor operation rate of the Bupyeong No. 2 factory, the parties agreed to convene a special committee later to come up with measures. Indeed, the agreement is studded with bones of contention.
Despite such loopholes, however, the government and the Korea Development Bank (KDB) have no choice but to respect the deal. Albeit tentatively, the 500 billion won government subsidies can prevent the collapse of GM Korea and its partner companies that hire a staggering 150,000 workers. At least, the move can stave off the disastrous cycles of chain bankruptcies, massive unemployment and a meltdown of the local economy.
The government and KDB will continue their negotiation with GM until this Friday to make a final decision on subsidies. GM is a global company with rich negotiation experiences in many parts of the world. The company clearly understands that the Korean government is big on promotion of job security; it also knows provincial elections are merely 50 days ahead. Tellingly, GM made a surprise announcement on the shutdown of the Gunsan factory without any consultations, before making a visit to Korea and arranging meetings with politicians as the first order of business.
KDB, the second largest shareholder of GM Korea, must earn a commitment from GM headquarters that the company will stay in the Korean market for at least 10 more years. It is absurd to spend our tax payers’ money worth 500 billion won and designate the Bupyeong Incheon factory as a tax-free FDI zone, unless the company comes forth with such a commitment.
Of course, the fundamental issue remains: the misalignment between GM headquarters’ robust profits-first strategy and GM Korea’s anemic labor productivity. There is no reason for any company in the world to keep a factory that does not yield profits. GK Korea’s issues of today will erupt again tomorrow, unless and until they address this fundamental problem. A stopgap measure is not enough; a more drastic restructuring must be followed. That is the only way for GM Korea, the laborers and partner companies to survive in the long haul.