GM Korea Makes Major Wage Concession to Avert Strike

GM Korea breaks the mold of resistance maintained by Korea’s five automakers and advises its labor union it is now willing to include fixed bonuses that are paid regularly in calculating basic wages.

The concession raises the payout for overtime and holiday work, severance packages at retirement and other compensation.

The Korean Metal Workers Union, the umbrella union for workers at all five automakers, has instructed negotiators at all of its branches to press for this watershed inclusion, which ends years of paying bonuses that are counted separately from regular wages, saving the automakers billions of dollars in labor expenses annually.

Analysts see the GM Korea offer as a breach of the management dam for Korea’s other automakers, and believe worker unions at Hyundai, Kia, Renault Samsung and Ssangyong will intensify their efforts to recalculate their basic wage packages to include the heretofore excluded bonuses.

Securities analysts believe recalculating the basic wage at Hyundai alone would increase the automaker’s labor cost by 5 trillion won ($4.9 billion) annually, so both sides have dug in their heels.

GM Korea CEO Sergio Rocha, who personally leads the management bargaining team, says he made the offer after 69% of the automaker’s 14,000 employees approved going on strike to break the negotiation impasse with management. They have not set a target date for a walkout.

A strike would cripple the automaker’s attempt to recover from a 34% plunge in exports to Europe and other markets in the first half of 2014.

To adjust to the lost exports, GM Korea slashed its workforce at the Gunsan plant, which has shed about half of its workers. The union is trying to get management to maintain production at a fixed level.

A GM Korea spokesman declines to tell WardsAuto which specific bonuses would be included in recalculating the basic wage. However, the union has demanded five months’ pay as a special performance bonus, as well as a wage hike and production-volume guarantees.

Another of the automakers’ greatest concerns is that their unions also are being instructed to press for three years of back pay, should they follow the lead of their GM Korea counterparts and win their readjustment demands.

In a case involving an employee of an auto-parts maker who had sued his employer for back payment of wages recalculated to include bonuses, the Supreme Court of Korea last year ruled in his favor.

GM Korea is sure it will not have to pay recalculated back wages because the Supreme Court also ruled that if companies could prove it would cause extreme financial hardship and threaten their sustainability, they could apply to be excluded from the back-payment liability.

GM Korea believes it can successfully make such an argument, and likely will ask its union to not even make a back payment demand.

However, well-heeled companies like Hyundai and Kia, with very deep pockets and enormous credits, are in a different position. Hyundai, the biggest and richest among the automakers, arguably has the weakest argument that paying back wages would damage its position.

On the same day Rocha made the basic-wage recalculation offer, Hyundai Motor Group, which includes both Hyundai and Kia, announced it was seeking to acquire the headquarters buildings and site now occupied by Korea Electric Power, a move analysts believe could cost nearly 3.2 trillion won ($3 billion).

Korea Electric must move from Seoul to the city of Gwangju to follow a government edict to relocate key government-owned businesses outside of the Seoul region to more evenly distribute wealth and employment opportunities.

Hyundai announced it would use the site to expand its own headquarters operations as well as construct a convention center, hotel and automotive theme park.