General Motors’ South Korean unit dropped their plan of filing for bankruptcy following winning concessions on pay, bonuses and advantages from its labor union in a tentative deal reached on Monday.
The deal will make the way for almost $500 million in fresh capital injection by the South Korean government, providing much-needed liquidity to South Korea to pay workers and its providers, but slumping auto sales and low factory run-rates raise concerns about its longer-term future.
The concessions by GM Korea’s powerful auto union are anticipated to heap pressure on other auto unions for comparable moves, at a time when South Korea’s auto industry is grappling with increasing labor costs and slow demand from the United States and other countries.
“Through the recent agreement, General Motors will be a competitive manufacturing company,” stated Kaher Kazem, chief executive of GM Korea.
GM shocked South Korea in February when it revealed a major restructuring strategy for the money-losing unit, which involved closing one of its four plants in the country and voluntary redundancies for 2,600 employees.
The automaker had sought wage concessions from the union together with government funding and incentives to save its other three South Korean plants.
The board of GM Korea postponed a decision on whether to submit for court-managed bankruptcy protection until Monday evening after the automaker couldn’t reach a wage deal with its labor union in time to meet a Friday deadline.