GM moving production of nextgeneration Chevrolet Cruze out of Korea

GM moving production of next-generation Chevrolet Cruze out of Korea.

Union Calls News Leak GM Korea Ploy to Curtail Wages

Union officials see the auto maker’s veiled threat to ease its way out of South Korea as a tactic to force a compromise on back pay for workers if it loses lawsuits demanding compensation for unpaid overtime.

The GM Korea Branch of the Korea Metal Workers Union thinks the auto maker deliberately has leaked information alleging GM Korea has begun downsizing operations to reduce its risk exposure in South Korea, and may even be contemplating pulling out of the country entirely.

The information, reported Sunday by Reuters, has appeared in news media around the world.

“The reporters did speak with somebody at GM Korea, but it is a ploy by management to threaten our union indirectly, which is typical of GM labor relations,” a union source tells WardsAuto.

He notes reporters also spoke with union officials.

“It is in the interests of management for this article to be out,” the source says. “I am sure that some in management may think it is a good idea to downsize the company, but we’re not sure that it will ever be realized.

“However, the future is the future. Tomorrow management might say they will stop production of another model; we never know. They never tell the union until something is fully decided.”

One source familiar with GM Korea’s internal discussions tells Reuters the auto maker wishes “not to become too dependent on one product source.

“If something goes wrong in Korea, whether it is cost, politics or unions, it has an immediate impact,” says the source, whois notidentified.

Asked to comment on the report saying GM Korea has begun downsizing with a longer-range view of leaving Korea, the auto maker releasesonly a vague statement: “We have a strong team and presence in Korea which has been good for GM and for Korea.”

The statement does not address the auto maker’s future outlook for South Korea, and company spokesmen do not answer questions about the matter.

The union source says workers and management currently are in a “honeymoon period” following the recent signing of a new collective-bargaining agreement. He says all plants are running at capacity with overtime except for the Changwon plant that produces the Chevrolet Spark. That facility is meeting demand without overtime scheduled.

Analysts and the union source note that even with the collective-bargaining agreement behind them, GM Korea and General Motors corporate management are concerned there may be favorable rulings on several worker lawsuits seeking large amounts of back pay for allegedly unpaid overtime compensation.

The employees’ lawsuits cite a court ruling ordering GM Korea to include bonuses paid to workers when calculating overtime payments.

The auto maker has said if the workers win their lawsuits and GM Korea is required to recalculate overtime wages going back three years under current regulations, it will face an enormous expense resulting in labor costs increasing about 10%.

Analysts and union officials say, however, that GM Korea last year had its biggest-ever profit, but had to write it down with a contingency to cover the possible back-overtime payouts that could result from the lawsuits.

GM Korea reported a 2012 loss instead of record profits and withheld 746 billion won ($697 million in December 2012) to cover the possible exposure if the auto maker’s appeal of the ruling is  unsuccessful.

Union officials see GM Korea’s veiled threat to ease its way out of South Korea as a tactic to force a compromise on back pay for all workers if it loses the unpaid-overtime lawsuits.

The Reuters article also cites unnamed management individuals as stating wages are too high in Korea and this, combined with the strong won, puts South Korea in the uppertier of the world’s high-cost manufacturing centers.

The union source disputes this. He notes that while pay has risen yearly since GM took over the South Korean research and production assets of failed Daewoo Motor in 2002, wages are not out of line with those of other industrialized nations and GM Korea is a key new-vehicle development center with many vital production advantages.

He says a GM Korea worker with 10 years of seniority typically receives total monthly pay of about 4 million won ($3,600). This comprises 2 million won ($1,800) in base wages, 1.5 million won ($1,345) that management classifies as bonus pay but omits when calculating overtime and 500,000 won ($450) in compensation that includes a 2,500-won ($2.25) daily lunchtime allowance and vacation-pay accruals.

The annual wage for the worker with 10 years of seniority totals 48 million won ($43,200).

The union spokesman says 10 million won ($9,000) in special bonuses workers will receive under the new collective-bargaining agreement are not included in the 4million-won monthly total.

The contract bonuses are paid in installments of 4 million won ($3,600) upon ratifying the contract, and 6 million won ($5,400) at the end of the year, raising the 10-year worker’s full-year wages to 58 million won ($53,200).

The union source notes GM Korea does not face the financial burden of retiree pension costs that the parent company bears in the U.S., Canada and some other markets.

A GM Korea worker who retires gets a one-time payout of one month’s pay times the number of years of service. Thus, a worker who retires with 30 years of service gets a single payout of 30 months’ pay, and that is the end of the auto maker’s financial obligation.

The source adds Min Ki, chairman of the GM Korea branch of the KMWU, has said he is proud of GM Korea’s production of high-quality vehicles that figured significantly in helping the parent company work its way out of bankruptcy.

Analysts note GM Korea produces 805,000 completely built-up vehicles annually and exports 600,000 of them, mostly to Europe, under the Chevrolet badge.

The industry-watchers also note management doesn’t talk about GM Korea’s enormous complete-knocked-down business, which sees 1.3 million or more CKD kits shipped every year for assembly overseas.

They say the CKD vehicles are of high quality and produced at a considerable cost advantage over any of GM’s other manufacturing centers. GM Korea operates a full-fledged CKD plant in Incheon and has developed that part of the business as a specialty.

Although it is not publicized and GM International Operations and GM China try to avoid acknowledging it, a large share of the CKD kits go directly to Shanghai GM plants for assembly in China.

These analysts note these products, made with high-quality Korean steel, are keys to keeping GM’s China production costs low and supporting its capacity. By importing the vehicles as CKD kits and assembling them locally, Shanghai GM also avoids paying sizable tariffs that would apply to CBU vehicles.

While GM Korea’s profit margin on CKD kits is low, GM Shanghai enjoys a significant cost advantage and,thus,the subsidiaries’ financial effect for GM's global operations is not clearly defined, analysts say.

They note General Motors International Operations accounts for about 40% of GM’s global sales and 80% of GMIO’s sales are made in China, where GM’s joint ventures hold a 15% share of market.

The union source agrees with analysts that GM Korea is an important element in supporting and sustaining growth, not only in China but also in all of the auto maker’s major markets.

Some observers recall there was once a successful and robust company in Korea called General Motors Korea. It was a joint venture partner with Shinjin Motors, but GM sold its shares and pulled out in 1982 after disputes over how best to manage production assets and market the vehicles.

That Korean auto maker continued independently as Daewoo, whose Korean assets were acquired by GM at auction in 2001 and which became GM Daewoo Auto and Technology in 2002.

Until the 1997 collapse of major Asian financial markets, Daewoo had been highly successful and was Korea’s No.2 auto maker, close on the heels of Hyundai. In 1998, Daewoo even acquired Kia but divested the subsidiary in 1999 when it found itself struggling. Now part of Hyundai, Kia is the country’s No.2 auto maker.

GM was one of the major bidders for Daewoo’s assets at the global auction. However, Korean government officials and industry leaders at the time were not warm to GM Korea’s bidding because of its record of pulling out of the Korean market.

The Daewoo executive in charge of the auction even made fun of GM when Ford was revealed to be the successful preferred bidder at a news conference in Seoul.

GM bid successfully for Daewoo’s assets after due diligence showed Ford’s overseas operations were in poor shape, and it rescinded its initial 7.8 trillion-won ($7 billion) offer.

Hyundai, a bidder in a joint arrangement with Chrysler, also withdrew and GM spent more than a year making its final offer while Daewoo executives were left hanging on tenterhooks.

Some of the Daewoo executives contended that, but for disastrous investments in some overseas markets, the auto maker was turning itself around in 2001 when GM cinched the deal and acquired Daewoo’s Korean and Vietnamese production assets and its sales network in Europe.

GM used the European sales network to market GM Daewoo products throughout Europe and greatly boosted sales and made the subsidiary profitable within a few years. The network, still owned by GM Korea, now handles all Chevrolet sales in Europe.

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