GM Says Labor Disputes Are Making South Korea Look Unmanageable

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Over the last few years, General Motors has been cautiously hinting that it wants to pull out the Korean market. In 2018, the automaker started worrying about regional bankruptcy and shuttered one of its South Korean facilities after noting that labor costs had been on the rise. While the government handed GM 850 billion won ($712.85 million) in industrial aid to stick around, the region is known for labor disputes. We even celebrated the fact that South Korean Hyundai failed to strike in 2019. General Motors was less fortunate, however.

The Detroit-based company is once again discussing abandoning the market and citing labor issues as the primary cause. Employees have been organizing limited daily strikes since October 30th. Despite only lasting part of a single shift, it’s impacting production and will only end once the automaker ends a wage freeze enacted during the aforementioned deal in 2018.

Steve Kiefer, president of GM’s international operations, told Reuters this week that the strikes and other industrial actions have cost the company 17,000 vehicles in lost production. That number is expected to reach 20,000 units by the end of Friday.

From Reuters:

That blow to production was on top of the 60,000 units lost earlier in the year as the novel coronavirus spread, making it likely GM Korea would not turn a profit this year unless it could recapture that output, he added.

“We’re basically being held hostage in the short term by lack of vehicle production,” Kiefer said in a telephone interview. “That’s having a very significant short-term financial impact.”

The industrial action would “basically make it impossible for us to allocate any further investments or … new products to the country of Korea. It’s making the country non-competitive”, he said.

“It is going to have long-term effects if we can’t get this resolved in the coming weeks.”

The union is demanding to maintain one-year contracts and a yearly performance bonus of 22 million won ($19,900). It would also like the automaker’s assurance that two plants in Bupyeong will be allocated product so they can remain open and there’s been a push to transition contracted workers into full-time employees.

“We are not only striking over wage issues, but also over job security at our No. 2 plant in Bupyeong, which hires about 1,200 workers,” said union official Jung Jai-heon, who added negotiations haven’t gone as well as anticipated.

GM wants to move toward two-year labor deals and has offered signing bonuses of 8 million won ($7,230) for each union member over the next two years. But we’re inclined to believe it wants to pull out of the market (or at least streamline it heavily) after posting an operating loss of 332 billion won ($300.8 million) last year. While less serious than losses incurred in 2018, it’s not what GM wants to see when 2020 is guaranteed to be a financial disaster.

Fortunately for the region, the automaker cannot legally divest from South Korea for ten years after accepting government handouts in 2018. But GM isn’t exactly bending over backward to support local operations. Numerous programs have been cut as strikes continue. We envision the company giving Korea the bare minimum to adhere to legal obligations and shifting whatever operations it can to China over the next few years.

[Image: General Motors]

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