The South Korea unit of General Motors dropped plans to consider a bankruptcy filing after it won concessions for pay, bonuses as well as benefits from the labor union in negotiations with a tentative deal reached Monday.
The deal, once formally approved, paves the way for close to $500 million of fresh capital from the government of South Korea that will provide much needed liquidity to the GM division to pay its employees and suppliers, but declining sales and low run rates at factories bring up questions of its long-term future.
The concession by the strong auto union should place a large amount of pressure on other South Korea auto unions to make similar moves, during a time when the auto industry in South Korea is fighting with higher costs of labor and declining demand from the U.S. as well as other markets.
CEO of GM Korea Kaher Kazem said that the new agreement will make GM Korea competitive.
GM in February shocked the country when it announced a major plan of restructuring for the unit that has been losing money, which involved the closing of one of its four factories in South Korea and a voluntary layoff plan for over 2.600 employees.
The carmaker had been seeking wage concessions from the auto union and funding as well as incentives from the government to save the remaining three factories in South Korea.
The GM Korea board of directors delayed its decision on filing for bankruptcy protection that would be court managed until Monday night after a wage deal failed to be reached with its labor union in time to meet the deadline of last Friday.
The union agreed to the request by the company to freeze the base wage and to skip bonuses in 2018 as well as cut back on benefits, said someone close to the deal.
Future increases of base wages along with performance pay would be dependent upon GM Korea returning to profitability, while the base wage increases will not exceed the inflation rate, said the source.
Regarding the remaining 680 workers at its factory in Gunsan, which will be closed in May, GM Korea said it would implement options that include voluntary layoffs and transfers to other factories to avoid a layoff.
The union was not present at the press conference that announced the agreement but executives from GM and government officials were present.