COVID-19 and Strikes... Concerns Over Withdrawal in Worst-Case Scenario

Korea GM Investment Suspension Decision…12,000 Units of Accumulated Loss Due to Union Strike

[Asia Economy Reporter Kiho Sung] Korea GM has suspended the execution of investment costs related to the planned investment at the Incheon Bupyeong plant for the production of next-generation global new products, drawing attention to whether investment at the GM headquarters level will also be affected. In particular, Korea GM is suffering from severe deficits due to the direct impact of the COVID-19 pandemic, raising concerns that, in the worst case, withdrawal might even be considered.

This decision by Korea GM comes as the company faces an extreme liquidity crisis caused by the union's partial strike that began at the end of last month. According to Korea GM, if the partial strike is carried out for three days starting immediately, about 5,000 units of production loss are expected. The losses from labor disputes, including refusal of overtime and special work and partial strikes since the end of last month, have already exceeded 7,000 units. Ultimately, with this additional labor dispute decision, the cumulative production loss is feared to exceed 12,000 units. Previously, Korea GM, which experienced disruptions in parts supply due to the COVID-19 pandemic, recorded a cumulative production loss of 60,000 units in the first half of this year alone. To compensate for the production losses caused by the pandemic, more volume should be produced in the second half of the year, but union risks have made even this difficult.

Meanwhile, the Korea GM union is pressuring the company by enforcing another partial strike just four days later. The union held a central dispute countermeasure committee on the 5th and decided to conduct partial strikes for 8 hours each on the 6th, 9th, and 10th. The union had previously conducted 4-hour partial strikes for the first and second shifts on the 30th of last month and the 2nd of this month. The union also plans to continue refusing overtime and special work, which started on the 23rd of last month.

Due to the Korea GM union's strike, the company is expected to record a deficit again this year. Korea GM has recorded losses for six consecutive years from 2014 to last year. In 2018, it closed the Gunsan plant and faced the crisis of withdrawing from the Korean market, but it has been pursuing business normalization by receiving $750 million from KDB Industrial Bank and $6.4 billion from GM headquarters, respectively.

Korea GM is in urgent need of securing liquidity. To improve business efficiency this year, Korea GM sold the Bupyeong logistics center site and has been deferring 20% of wages for office workers at the team leader level and above since April. Executives are also deferring 20% of their wages and additionally cutting salaries by 5-10% depending on their rank. However, there is a limit to securing liquidity independently, and if labor-management conflicts worsen, additional investment from GM headquarters cannot be guaranteed.

Industry insiders express concerns that Korea GM might choose withdrawal in the worst case. Current and former executives, including Kaher Kazem, President of Korea GM, are banned from leaving the country due to indictment on charges of violating the Dispatch Act. President Kazem set a goal of turning a profit at the U.S. headquarters this year but is now facing judicial and labor risks following COVID-19.

An industry official pointed out, "Management, who should focus on product development and business operations, is wasting time resolving judicial and labor risks. In a situation where independent liquidity cannot be guaranteed, if the parent company stops support, Korea GM could be forced to consider withdrawal."

This content was produced with the assistance of AI translation services.