Union Chiefs Fear New CEO May Pull Plug on GM Korea

Kaher Kazem, the new CEO of GM Korea, has assured employees the parent company has no plans to quit Korea. Leaders of the GM branch of the Korean Metal Workers Union are not so sure.

Their concerns are based on GM’s move to consolidate all of its international operations except China into a new organization headed by Barry Engle, currently corporate executive vice president and president of GM South America.

Consolidating Asia Pacific operations with those in South America with a new management structure and a mission of optimizing performance at all GM overseas operations likely will entail cost-cutting and increasing productivity at all of the Detroit automaker’s unprofitable or marginal properties, including those in South Korea.

Currently, 17.02 % of GM Korea shares are owned by the Korea Development Bank, which has a seat on the board and veto power over any move to downsize or sell off major assets. Its 15-year veto power ends Oct. 17, raising speculation by KMWU officials that GM may scale

back, if not terminate, GM Korea operations once the parent company has the latitude to do so.

Many analysts think the union speculation may have some substance, and a drastic downsizing of money-losing GM Korea makes good business sense.

Short of boosting production to optimum levels by assigning models built elsewhere to GM Korea’s underutilized, high-cost plants, the chances of realizing a profit based on the company’s current performance are considered remote.

When Kazem took over Sept. 1 as CEO, he immediately met with KMWU leaders and sent messages to all employees outlining GM Korea’s tenuous financial condition. He explained the automaker has lost money in three consecutive years, with a cumulative net loss of 1.97 trillion won ($1.7 billion).

Kazem asked for everyone’s cooperation in improving efficiencies and hiking productivity.

He also stressed GM has no plan for abandoning Korea, instead pledging GM Korea was a valued affiliate important to overall international operations.

He did not say so, but GM Korea currently cannot negotiate acceptable credit instruments with local banks in Korea because of its losses and potential for continued losses. For its borrowing, the automaker has turned to GM Holdings to acquire credit instruments at competitive interest rates and non-restrictive terms.

Instead of providing Kazem with the cooperation he asked for, the union leadership called a partial strike. It was staged the day before he held a news conference to give public assurances that GM Korea has a good future.

Kazem then asked KMWU negotiators to meet with him Sept. 15 for a ninth round of wage negotiations that had begun in April. Union bargainers refused to meet with management and ramped up the partial strike.

Kazem came to GM Korea from India, where he had served as managing director of GM’s India operations. There he oversaw the sell-off of the main production center in Talegaon to Chinese automaker SAIC and the conversion of GM India’s other plant in Halol to a producer of kit cars earmarked for export only.

Thus, union leaders see Kazem as a restructuring specialist who was sent to GM Korea to shrink operations, possibly ahead of a complete pullout.

Talks Stall as GM Korea Opposes Non-Wage Demands

Despite plunging sales and three years of losses, union negotiators continue to demand a high monthly wage increase of 154,883 won ($136) and bonuses equivalent to five months’ pay (about $42,000 for a long-term employee).

They rejected out of hand the company’s most recent offer of a 50,000 won ($43.75) monthly pay increase, a signing bonus of 6 million won ($5,250) and a 4.5 million won ($3,940) performance bonus, payable at the end of the year.

While GM Korea will not provide details of negotiations with the union, analysts believe the union is refusing to resume negotiations again unless Kazem agrees to include the non-wage demands on their agenda.

The union demands include having veto power, or a say in operations, including any plant downsizing or job reductions, and making management guarantee stipulated employment levels at all GM Korea plants.

In line with Korea’s labor laws, the automaker maintains the negotiations must focus only on worker compensation, and not on non-wage/bonus matters.

When asked about the strikes and the union’s boycott of the wage talks, a GM Korea spokesman told WardsAuto, “Despite the union strikes, the company will continue making an effort to peacefully complete the current negotiations and build amicable labor relations.”

Currently, all three vehicle-production facilities in Bupyeong, Gunsan and Changwon, the Boryeong transmission plant, the Incheon CKD plant and the Cheongna test track and vehicle analysis center in Incheon are closed for the 10-day Chuseok Thanksgiving holiday.

However, during the holiday GM Korea staff released a sales report for September and the first nine months of 2017 showing a dramatic drop in both domestic and export sales.

Domestic sales last month tumbled 38.1% with only 8,991 vehicles sold. Car sales were off  43.3%, and commercial-vehicle deliveries were off 2.9%.

For the nine-month period, domestic sales were down 15.9% with 102,504 units sold.

Even the company’s best seller, the diminutive Spark, saw domestic deliveries plummet 40% year-on-year year in September to 3,396 units sold, and plunge 36.8% for the nine months with 35,592 units sold.

Exports of the Spark were down 17.7% for September, with 7,522 units shipped. For the year’s first nine months, Spark exports were off 18.5% at 72,541 units.

September total exports – the lifeblood of the company – were virtually flat, with 31,273 vehicles shipped. Total exports were off 2.3% for the nine months, with 299,476 units shipped.

In its heyday, GM Daewoo, the predecessor of GM Korea, booked annual export sales of upwards of 1 million vehicles.

Completely knocked-down exports, an important but often unreported part of GM Korea’s business that always has exceeded exports of completely built-up vehicles, also were down.

In September CKD export shipments tallied 48,004 units, a drop of 4.1%. For the nine months, CKD exports were off 12.6%, with 445,127 units shipped.