General Motors Co. Chairman Mary Teresa Barra announced restructuring plans last year to downsize the workforce by 18,000 in North America and shut down seven plants around the world. In addition, she said she would close down two more overseas plants which fail to make a profit at the end of this year. This was designed to focus on future cars, including autonomous driving-based mobility and network businesses.
Except for China where the firm established a joint venture, there are only two plants that could be possibly shut down: those in South Korea and Brazil. GM Korea, which has stabilized its business with a joint investment of 8 trillion won (US$6.80 billion) by the U.S. headquarters and the Korea Development Bank (KDB), posted 614.80 billion won (US$522.57 million) in operating loss last year again. The firm had posted a loss for five years in a row. The company needs to produce a profit this year in order to avoid another round of restructuring by the parent company.
This is why the firm carried out its large-scale voluntary retirement program on South Korea’s vehicle sales, service, and marketing (VSSM) earlier this month. GM Korea spun off its research and development (R&D) unit with 3,000 employees into GM Technical Center Korea (GMTCK) under the global head office. The company now has 2,000 office employees and 7,000 production employees. It reduced the number of production workers by 3,000 after the shutdown of the Gunsan plant last year so it is impossible to cut down labor costs in the sector further. Therefore, GM Korea aims to create a profit structure by carrying out restructuring on the office organization first.
The problem is that the desperate production labor union, which belongs to the Korean Confederation of Trade Unions (KCTU), is putting more pressure on the firm. The labor union of GM Korea is now asking the management to restore benefits that it gave up on condition that the company received 800 billion won (US$679.98 million) from the KDB last year and increase 120,000 won (US$102) in base pay.
However, the labor and management cannot even reach an agreement on the place for wage and collective bargaining negotiations. Accordingly, the GM Korea union asked the National Labor Relations Commission (NLRC) to mediate the impasse on June 13. It will vote to decide on whether to go on strike for two days until June 20. If the mediation in the labor trouble discontinues and unionized workers vote for a strike, the Renault Samsung Motors Co. incident, which partially shut down business for 12 months and suffered from large-scale order cancellation, can recur in GM Korea.
In addition, South Korea’s status as a vehicle production base will nosedive further if GM Korea is embroiled in a labor dispute again after Renault Samsung. South Korea saw its car production fall for three years in a row as GM Korea reduced production by 14.4 percent and Renault Samsung by 18.3 percent last year. Some experts say that the country can fail to meet an annual production of 4 million units this year, which is the Maginot Line to maintain the industrial ecosystem. Furthermore, the labor union of Hyundai Motor Co. and Kia Motors Corp. are also demanding 30 percent of the company’s 2018 operating profit as an incentive for all employees and retirement age extension to 65.
Some also warn that the global head office will not just watch unionized workers which habitually go on firm fighting, though the industry is going downhill. In particular, GM Korea can utilize strong shock effects, including temporary closure, before the presidential election next year if the dispute intensifies. Automotive engineering professor Kim Pil-soo at Daelim University said, “South Korea’s car industry fails to deliver the goods as it is too busy negotiating wages every year. It has to prove its global competitiveness by making good cars instead of making unreasonable demands.”