Union Deal Means GM Korea Won’t File for Bankruptcy
After reaching a tentative deal with its labor union today, GM Korea is no longer making plans to file for bankruptcy.
General Motors’ South Korean unit lost more than $1 billion in 2017 and was in the red for three years before that, too. Today’s union deal sets the stage for the government to step in and provide $500 million in capital to keep the business running.
The union agreed to a pay freeze, benefit cuts, and no 2018 bonuses. GM Korea is already shutting down its plant in Gunsan, one of four in the country, and cutting 2,600 jobs as part of a restructuring plan.
Initially, GM Korea’s board had set a Friday deadline for deciding whether to file for bankruptcy, seeking a union deal and a funding commitment from the government by that date. After talks with the union hit a snag, GM Korea had delayed the bankruptcy decision until today.
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Now that a union deal has been reached, the next step is for GM Korea to negotiate with the government on how much assistance it will receive. That help is likely to include tax incentives, along with funds from South Korea’s state-run bank, which is the unit’s second-largest shareholder. That agreement could be in place by the end of the week.
Today’s deal is likely to keep GM Korea going in the short term, but its long-term future is still in doubt. The South Korean unit has been under severe strain due to declining in-country vehicle sales, withdrawals from key export markets, high labor costs, and decreasing demand for small cars, which are GM Korea’s specialty.
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News Source: Reuters