Workers of General Motors (GM) Korea took to the streets on February 28 to demand the company rescind its unilateral decision to shut down one of its three plants in South Korea. Members of the GM Korea branch of the Korean Metal Workers Union (KMWU) weathered freezing rain to rally outside the Central Government Complex in Seoul.
Weeks before, GM had threatened to take its “first step” in restructuring the GM Korea unit by shutting down its factory in the city of Gunsan by the end of May 2018. Over the course of five years from 2012 to 2016, GM Korea had accumulated a $1.9 billion deficit. South Korea produced close to a fifth of GM’s global output at its peak. But GM’s decision to exit other unprofitable markets have exacerbated problems for GM Korea, which used to build many of the Chevrolet models GM once offered in Europe.
Closing the Gunsan plant would cost the jobs of 16,000 workers directly employed by GM Korea, as well as 140,000 workers who work for the plant’s suppliers. And the closing of the Gunsan plant could be just the first of many additional steps that would ultimately affect the fate of the three other GM Korea manufacturing plants in South Korea. Currently close to 300,000 workers depend on the continued full operation of GM Korea.
This announcement of GM’s “first step” in restructuring its subsidiary in South Korea has caught the attention of the South Korean government, and the two sides began negotiations on how to sustain GM Korea. On February 22, the GM headquarters requested aid, including financial support from the state-run Korean Development Bank (KDB) and tax benefits from the South Korean government, to normalize management at GM Korea. In return, GM proposed a plan to re-invest $2.8 billion and a debt-equity swap for the $2.7 billion debt owed by the South Korean subsidiary to the headquarters. GM has offered no concrete plan, however, on how it will improve its business and management practices to ensure recovery and long-term sustainability.
How did GM Korea end up with a $1.9 billion deficit? This is the question the South Korean government and its people are asking. The Minjung Party — founded in the wake of the candlelight revolution that ousted former President Park Geun-hye — is actively involved in uncovering the root of the deficit and working with the labor sector and the South Korean government to find a workable solution. The party has called for an investigation of the business practices of GM headquarters and the role that it played in creating the deficit.
In particular, the Minjung Party has raised questions about the GM corporate headquarters’ practice of levying high interest rates on loans to its South Korean unit. GM has lent its South Korean unit nearly $2.79 billion (3 trillion won), charging interest of 4.8 to 5.3 percent per annum. Between 2012 and 2016, GM Korea spent more than US$450 million on interest payments to its corporate headquarters alone.
GM Korea also reportedly bore much of the research and development (R&D) cost generated by its U.S. corporate headquarters. In 2016, alone, GM Korea spent no less than US$550 million on R&D — more than the amount of the company’s operating loss. In addition, critics charge, GM Korea bore financial responsibility for the company’s decision to withdraw its business from Europe and Russia. And despite the fact that GM Korea invested more than US$550 million in the technical development of the company’s Chevrolet Bolt, the patent right for the electric car was granted exclusively to its U.S. headquarters.
The South Korean Trade Ministry has accused GM of “opaque” management. Trade minister Paik Un-gyu told members of South Korea’s National Assembly, “By opaque we mean the high rate of profits to raw material costs, interest payments regarding loans and unfair financial support made to GM’s headquarters.” According to The Hankoyreh, the South Korean government had made repeated requests to GM to disclose information regarding its financial performance and business as well as management plan.
The GM conflict comes at a rocky time in U.S.-South Korean relations after the Trump administration’s recent decision to impose high tariffs on steel imports (South Korea is the third largest steel exporter to the United States) and ahead of the third round of bilateral negotiations to revise the U.S.-Korea Free Trade Agreement.
South Korean trade unions fear that GM will transfer its burden onto South Korean tax payers, then ultimately pack up and abandon its workers. Members of the GM Korea branch of the Korean Metal Workers Union (KMWU) have called on GM headquarters to invest in the long-term sustainability of GM Korea and ensure the job security of the 300,000 Korean workers currently employed by the company. They demand GM rescind its decision to shut down the Gunsan plant; propose a clear roadmap for introducing new products; increase production quantity; and turn the 3 trillion won (US$2.7 billion) loan by GM headquarters into capital investment. They have also called on the South Korean government to carry out a special audit of GM Korea; investigate GM’s financial and business practices; and guarantee union participation in the investigation.
By ZoominKorea staff
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