Koreans often see relations between labor unions and management as a conflict. The union is fighting in surrender to management who believes they are losing profit from the union. In order to have a smooth labor-management relationship, mutual understanding and consideration are needed first. Workers will need to work and produce results for a firm, and management will need to support its workers' work environment and wages, not just seek profit. Positive labor-management relations, however, cannot be achieved by the efforts of employers or workers alone. It is necessary for government to intervene so that a smooth labor-management relationship can be established. The GM situation is finally emerging as the government, workers and employers failed to reach a proper consensus. Damage from the GM situation is expected to be extensive. The economy in Gunsan and Jeollabuk-do will be in crisis. If GM factories close down, the jobless rate in Gunsan will increase as much as two times before closing down and the unemployment rate will soar to 3.2 percent. It is also expected to have more damage, because of the many subcontractors of GM which are estimated at 3001 and around 140,000 people who work in this companies. So, what are each of the principle views on this, and how can we solve them?
1. GM Situation: What Is its Cause?
a. What Is the GM Situation?
GM Korea announced that it had decided to stop producing cars at Gunsan factories and will close the factory by the end of May. It said that it made the decision because the factory operated at 20 percent capacity in the past three years and continually fell in sales. Daewoo cars were built in Gunsan, but collapsed after two years. GM America acquired it and created GM Daewoo. After the acquisition, GM operated in the black, and the company's status was high. But since the financial crisis in the United States, its status has begun to decline. Korea began to see a deficit in 2014. GM has been closing overseas factories gradually since the end of 2013. Last year, it decided to close its Australian factories and it decided to close its Korean factories in Gunsan this year. GM Korea does not make much profit, so it has made the extreme decision to close it down.
b. Problems with GM Management
After acquiring the Daewoo Company at a cheap price, GM has managed it to enjoy instant profit rather than its growth. According to the GM audit report in South Korea, GM invested about 500 billion won in the past while purchasing the Daewoo Company. GM's investment, though counting the 491.2 billion that it spent to increase its capital when it suffered from crisis because of the lack of short-term funds by the U.S. financial crisis, is still under a trillion. GM has taken at least 700 billion won to its headquarters each year since 2013. By simple calculation, the company has made at least 2 trillion won in profit by investing one trillion won. GM Korea will also pay annual interest of 5% to GM headquarters, all of which will become debts of GM Korea. In other words, GM Korea's company has become an insolvent enterprise due to transactions converting the low-interest debt owed to the Korea Development Bank into high-interested debt owed to U.S. headquarters. GM has directly financed only about 500 billion won since its acquisition of GM Korea. GM has run a loan-sharking business with GM Korea.
Except the dividends officially taken away with the profits, it is possible that GM moved GM Korea’s money to the United States each year through an opaque approach, such as through interest rates, R&D costs and transfer prices. According to researchers at the Korea Institute for Industrial Economics and Trade, considering the amount of new cars on the market, R&D costs have been wasted. It is very possible that the relocation price made profit for GM as well. It appears to be the case in that GM headquarters gives the raw materials to GM Korea at a high price and the finished car produced by GM Korea is sold at a low price. GM Korea has a 93 percent cost of goods sold, while other Korean carmakers have 80 percent cost of goods sold. This is also due to the price of transferring. GM also decided to reflect all of the processing costs of the closing of the Gunsan operations to GM Korea Accounting in 2018, in an effort to raise funds in Korea. That is, GM instructs GM Korea in the direction, but the losses resulting from it are all to hold GM Korea accountable without any liability to the head office.
c. Problems with GM Labor Union
The wage level in Korea in 2017 was 2.5 times higher than that of when GM immediately after its acquisition of Daewoo. In 2015, total labor costs have increased by more than 50 % compared to 2010. Even after going in to the red, the reward was paid more than 10 million won per year and the basic wage increase rate remained between from 3.3% to 5%. The wage negotiations that took place last year determined to increase 50,000 won with a basic wage, and the performance benefits were set at around 11.5 million won. Labor strikes have also continued after the U.S. financial crisis, with the exception of four years. Management usually said the results of the wage suit have increased the burden of labor costs. While GM Korea is continually recording a deficit because of the financial crisis and Chevrolet's withdrawal from Europe, the labor union requires higher basic wages and goes on strike. Because of this situation, GM judged it cannot operate the Gunsan factory anymore.
Among the 148 GM factories in the world, GM Korea`s productivity ranked 130th. How much productivity does Gunsan have compared to GM Korea alone? According to GM Korea`s status of production facilities in the past three years, Changwon factories produce 60 cars per hour to operate at 100 percent of capacity. Bupyung-1 factories also have the same result. Bupyung-2 factories produce 60 cars per hour and operate at more than 70 percent of capacity. The factory in Gunsan, however, produces 20 cars per hour and operates at less than 20 percent of the time. Even when comparing with Korean factories, it means that workers do not faithfully participate in the work force.
d. The Other Factors
Exports provide 85 percent of the total sales for GM Korea. GM's massive reorganization of global business made from GM Korea caused earnings from exports to fall. As GM has withdrawn from major markets such as Europe, India, Russia, and South Africa, and sold off its affiliates, GM Korea, which exported the finished car or parts to them, lost its suppliers. Especially after the Chevrolet was withdrawn from the European market, the deficit continued. Exports of finished cars are down 10 percent from 2015, except for the assembly of semi-finished products in 2016, and exports decreased 5.9 percent last year, which continues to worsen.
GM Headquarters aimed at focusing its business on autonomous cars and electric cars and are looking for a shift in sales strategy by focusing on service industries, not automotive manufacturing. Accordingly, they gave up the markets and brands that were not lucrative among existing production bases and markets, and focused on the markets and brands that were lucrative. The situation was caused by this strategy. It has adjusted its sales strategy to the lucrative markets such as North America and China, and expanded Shanghai GM into a production facility that can produce 4 million units. It developed Shanghai GM, because China is the largest global market and the cost of producing cars is noticeably lower in China than in other countries.
GM's withdrawal was not sudden and has been anticipated since Chevrolet was withdrawn from Europe. That is, the atmosphere of GM’s withdrawal was produced in Korea four years ago. Some argue that such a situation happened when the government had not done anything in the past to restructure the industry, such as reorganizing the manufacturing sector. Some ask the Industrial Bank of Korea, the second-largest shareholder of GM, why they did not do anything until GM decided to close its Gunsan factory.
2. GM Situation: How to Solve It?
a. Political Fight about GM Situation, Same Incident, But Different Interpretations
The Democratic Party stressed the company`s responsibility, saying it needs to improve its realizable measures and transaction structure. Meanwhile, the opposition party also blamed the labor union, and the government’s inappropriate actions. It claimed that this situation is due to a combination of GM's uncertain management system, unreasonable demands of the militant labor union and the government's lazy response. Also, they contend that Trump's U.S. administration's trade pressure on North Korea, in contrast to the government’s misplaced North Korea policy, also contributes to the problem. They say that the incident is not based on the problems of high cost and low efficiency but also on inappropriate diplomacy. Gunsan is in Jeollabuk-do, which is an important place for politicians to win votes. Therefore, it is not easy to say what actions should be taken in the region. This is because the June 13 local elections will take place and voters in certain regions can vote for candidates depending on how each party resolves the GM situation. Opposition parties are blaming the ruling camp for inappropriate diplomatic reasons, while the ruling camp is trying to come up with measures and block as many of these opposition attacks as possible.
b. What Do GM Executives Require?
GM headquarters requested the Korean government to provide collateral, participate in capital increase, support GM financing and provide incentives. GM headquarters demanded 2.9 trillion won in investment. Also, GM also demanded that the Industrial Bank of Korea to either support the 500 billion won loan or require a capital increase. It also said it would spend 3 trillion won on new investment over the next 10 years and the Industrial Bank of Korea should participate in 500 billion won in support. It requested incentives for foreign investment companies, such as providing factory collateral for the GM company`s debt of 620 billion won due in late February and providing tax breaks.
c. What Does the Labor Union Require?
Although management demands concessions from workers to cut costs, the labor union protested against GM. The union requires management to immediately revoke its decision to close down the factory in Gunsan and drastically reduce its foreign employees and its senior executives. It also insisted that GM suggest direction regarding new cars and how they will be put into the market. It asked for ways to expand the domestic market and export volume and specifies regarding the future development of cars in Korea. It is pressuring GM to come up with concrete measures on what will happen to GM and how to develop the company.
It is never easy to find a smooth consensus of labor-management relations. Each of the main players tries to act only for their own interests. However, if the fighting continues, it can never have a good influence on workers and employers. If they pursue their own interests only in these conflicts, the fight will never end. The case of 3M, when these conflicts occurred, the CEO solved them by personally interviewing 700 employees. It was resolved through continuous communication and feedback. Conversation, communication, and feedback should be the basics. Politicians did not suggest the right solution but they pointed fingers at each other, and the ministries of Industrial Bank and Strategy and Finance avoided their responsibilities. If politics and regional logic are combined, the negotiation with GM will not be possible. If the government provides funds, they are used as labor costs for GM workers in Korea. This measure cannot afford to back down from labor unions or to ensure transparent management and use only taxpayers' money. The nation's car industry is currently falling behind. A solution to the GM situation should be made as soon as possible.< 저작권자 © 중앙헤럴드 무단전재 및 재배포금지 >