Union negotiators wear scarlet headbands during bargaining sessions with Korean automakers.
This in-your-face posturing by representatives of the Korean Metal Workers Union has two purposes: to put the car companies on notice they’re ready to fight, and to assure the fractious rank-and-file they’re ready to fight.
The KMWU this year hopes to replicate the success it had in 2014, when it won substantial increases in wages and bonuses from GM Korea, Renault Samsung, Hyundai-Kia and Ssangyong without staging the strikes that usually accompany annual contract negotiations. Auto workers have staged partial or full-blown walkouts, some marked by violent confrontations with police, almost yearly since the mid-1990s.
GM Korea unexpectedly caved in last year to the union’s demand that it include fixed bonuses in calculating basic wages. The concession raised payouts for overtime and holiday work, severance packages at retirement and other compensation. For years Korean automakers had paid bonuses counted separately from regular wages, saving billions of dollars in labor expenses.
GM Korea CEO Sergio Rocha, a one-time line worker who personally participates in the talks, warned then the spike in costs would make not only his company but all Korean automakers less competitive. That followed then-GM CEO Dan Akerson’s complaint in 2013 that Korean auto workers’ wages were “too high.”
The average GM Korea worker’s wage in 2014 was $20,940 (within shouting distance of what a second-tier UAW member in the U.S. is paid, factoring in the strong won), but that base pay is inflated by bonuses ranging from $3,000 to $4,500 depending on seniority, profit sharing and other perks such as “family allowances.”
The KMWU last year came away with what it wanted, particularly Rocha’s agreement rolling bonuses into wage calculations – a demand Hyundai and Kia had strongly opposed. Rocha also promised to retain Chevrolet Cruze production for GM Korea, but parent GM announced in March the new-generation Cruze would be built starting in 2017 in Coahiula, Mexico. GM Korea will stop building the current Cruze at the end of next year.
Cruze-ing Out of Korea
GM also plans to build the new Cruze at a plant in China, which like Mexico carries lower labor costs than in Korea. In addition, the automaker also is taking advantage of relatively cheap labor in India, where it is building Chevrolet Beat minicars and exporting them to Latin America and Southeast Asia.
The Beat is a clone of the Chevy Spark, GM Korea’s highest-volume export product and its domestic best-seller. GM International Operations chief Stephan Jacoby told Reuters the automaker aims to raise GM India output to 400,000 units annually by 2025, seven times the current volume, and export 30% of that total.
Where does this leave GM Korea as its parent sends, and plans to send, production elsewhere?
“We have no concrete plans to close factories in South Korea,” Jacoby said. “But, to remain competitive, GM Korea must find ways to drive efficiencies over time.”
GM Korea already has seen Chevrolet builds for export crater since the parent company handed the European market over to its Opel brand last year. Production at the Gunsan plant is running well below capacity and the Changwon Spark plant’s loss of export business to GM India will intensify. Two plants in the Incheon district, one of which produces CKD kits for export to Shanghai GM, are running at or near capacity.
GM Korea’s export volume sank 24.3% and the automaker posted meager domestic sales of 160,000 units last year. So what is the KMWU now asking for, in addition to pay raises 252% higher than the increase it won in 2014 and bonuses 43% to 238% higher than the average paid out last year? Production-level guarantees from GM meant to save jobs, that’s what.
The automaker’s new-vehicle product-development center and engine-development center in Bupyeong are valuable assets, as measured by employees’ specialized skills. It’s a different story with the Korean line workers who differ mainly from their Indian, Mexican and Chinese counterparts in that they make a lot more money.
Rocha has said he doesn’t object to pay raises, but without higher productivity GM Korea could become “unsustainable.” Losing the new-generation Cruze might be seen as a first step toward fulfillment of that prophecy.
Union negotiators would do well to adjust their scarlet headbands so they’re not covering their eyes and ears.
– with Vince Courtenay in Seoul