The clock is ticking

The management and union of GM Korea failed to reach an agreement on a turnaround scheme to save the automaker from bankruptcy by its self-imposed deadline of Friday.

The union refused to accept management’s cost-cutting proposal, which cut the welfare allowances for employees. The country’s third-largest carmaker may go under court receivership, the worst-case scenario.

GM’s American headquarters had been pressing the union to agree to the restructuring plan by raising the option of bankruptcy, but the union remained recalcitrant. The government, hoping for a last-minute breakthrough, extended the deadline to Monday. Deputy Prime Minister Kim Dong-yeon, on his visit to Washington, bought time for the two, urging them to work out a deal by the new deadline but indicating the Korean government won’t wait forever.

The worst must be avoided. The deal presented to the union would close down just one factory in Gunsan, but can save the other three production lines in other parts of the country. Once under court receivership, other factories could face cuts. More than 3,000 workers could lose their jobs. The carmaker could also become liquidated if the bankruptcy court decides it has no possibility of turning its business around. If the automaker enters the bankruptcy court, normal operations will be impossible and dealerships will suffer.

A broken sales network is hard to recover from. The toll will not just hit the 16,000 GM Korea workers, but also over 300,000 workers in their supply chain. In that case, a chain of bankruptcies and layoffs is inevitable. Moreover, the local automotive parts manufacturing ecosystem could be wrecked beyond repair, damaging Korea’s international competitiveness.

The government has kept itself on the sidelines by demanding responsibility and burden-sharing from all stakeholders to come up with a sustainable recovery outline.

But its heavily pro-labor policies did not help level the negotiating field. GM Korea is at fault for poor management, but the union also shares some blame.

The company’s bottom line suffered because it had to go on paying handsome bonuses of over 90 million won ($84,072) a year regardless of the company’s deteriorating sales and profits. Both sides must work harder with eyes on their common future.