GM Korea avoids bankruptcy vote after new wage agreement

GM Korea May Have Avoided Bankruptcy at the Last Minute

After almost three months of negotiations, the South Korean unit of General Motors Co. and its workers reached a tentative agreement on a package of self-rescue steps that include shutting down one of GM's four plants in Korea, cutting thousands of jobs and less favorable working conditions for the remaining 13,000 employees.

GM (gm) nearly filed for bankruptcy on Friday, but delayed the plans until Monday in order to give union talks a last-ditch attempt.

GM says the new deadline will be Monday at 5PM in South Korea, which is about 4AM Eastern time.

Korea and its union held 14 rounds of talks in the past two and a half months to narrow differences on a package of self-help measures that include a planned shutdown of a local plant, wage freeze, no bonuses and the suspension of some work benefits.

After reaching a tentative deal with its labor union today, GM Korea is no longer making plans to file for bankruptcy.

In the three years through 2016, GM Korea posted 1.974 trillion won in accumulated net losses due to a lack of new models and lower demand.

According to the Reuters report, the deal will allow GM Korea to accept an offer of financial support from the government-backed Korea Development Bank, a 17% stakeholder in the operation.

If GM Korea goes bankrupt, the ripple effects could cost some 156,000 workers at the company and its subcontractors their jobs.

Regarding its 680 remaining workers at the Gunsan factory, which is scheduled to be shuttered in May, the company will "implement options including a voluntary redundancy program and transfers" to other plants to avoid layoffs.

"The government and the KDB will determine the support measures [based on the long-term plan provided by GM]", the head of the financial regulator told reporters on Monday. But industry watchers and analysts remain cautious, saying GM Korea will be able to turn itself around only when GM fulfills its commitment to make fresh investments in the Korean unit and allocate new vehicles to its Korean plants.

"Through the latest agreement, GM Korea will be a competitive manufacturing company", unit CEO Kaher Kazem said in a statement reported by Reuters.

The KDB, on the other hand, requested a 20-to-1 selective capital reduction to maintain its 17 percent share in the company, since the debt-to-equity swap proposed by GM would bring down the KDB's share in the company from 17 percent to 0.9 percent.

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.

Korea's board of directors were set to vote on court receivership at 8 p.m. should the talks fall apart.

General Motors' South Korean unit appears to have avoided bankruptcy at the last minute, thanks to a tentative wage deal with unions.

The South Korean unit, once the backbone of GM's Asian strategy, has been hobbled by labor costs and hurt by the automaker's decision to pull its Chevrolet brand from Europe, a key export market. It is also an engineering and design source for GM's small vehicles and electric vehicles, as well as home to some of GM's top-ranked suppliers globally.

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