Gwangju model on the rocks as FKTU talks withdrawal

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Gwangju model on the rocks as FKTU talks withdrawal

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Left: President Moon Jae-in, second from right, holds hand with relevant officials at an investment ceremony for the “Gwangju employment model” last Jan. 31. Right: The Gwangju division of the Federation of Korean Trade Unions holds a press conference in front of the Gwangju city government’s office warning that it might pull out from the agreement. [JOONGANG ILBO, JANG JEONG-PIL]

The Federation of Korean Trade Unions (FKTU), the second-largest trade union in Korea, is threatening to withdraw from a grand initiative that was to reverse the declining fortunes of the country’s automobile industry.

The Gwangju employment model was one of president Moon Jae-in’s key policies.

It centers on cutting wages to 70 percent of the average of workers at other car plants. It also allows for flexible working hours so companies can hire more people.

On Wednesday last week, the FKTU said it has had enough and suggested that it would not be supporting the program. The union has scheduled a protest for Tuesday.

The possible collapse of the project comes as the three parties involved failed to narrow their expectations on wages, job conditions and exactly who should be in charge of what. It is now unclear whether the project makes any sense at all and if it can ultimately work.

The Gwangju city government and Hyundai Motor established Gwangju Global Motors last year guided by Moon’s policy. The two are the biggest shareholders, investing 48.3 billion won ($39 million) and 43.7 billion won, respectively.

Construction began last December, and 8 percent of the car manufacturing plant is now complete. The plant, which is located in Gwangsan District, Gwangju, is scheduled to be operating at capacity - of 100,000 units a year - by next April.

Given the discordance, that ambitious schedule is looking less likely by the day.

The city government first proposed a yearly salary of 30 million won including allowances. Labor unions are challenging this gambit, claiming it provides workers with what amounts to minimum wage.

Met with heavy opposition, the city government proposed a revised wage plan raising the salary to 35 million for a 44 hour-workweek.

Hyundai Motor wasn’t happy either.

It says that the arrangement is unworkable. Wage increases are not linked to inflation but are renegotiated every year. Normally, these negotiations take place every five years.

Critics say that a number of issues dogged the agreement: the government body’s lack of experience running a business, the bad attitude of Hyundai Motor and the tug of war with labor, especially the insistence that the union get a board member.

The lack of the FKTU’s agreement will not immediately put a halt to the project.

Gwangju Mayor Lee Yong-sup has backed down, saying the city will accept all requests by the labor union. Hyundai Motor said it also hopes for the conflict to be resolved.

The bigger issue at hand is the viability of the business model and the potential effect of such conflicts on funding. If it is the product of conflict and grudging acceptance, Gwangju Global Motors might have a difficult time securing investment from investors. Gwangju needs an additional 360 billion won of funding.

The other issue is the declining local automotive market.

Sales of compact cars have been falling in Korea. They reached a peak of 200,000 units in 2012 and steadily declined to 100,000 units last year. Subsidies have been cut, and subcompact cars are not particularly profitable.

Even if Hyundai eventually overcomes the ups and downs and successfully produces 100,000 SUVs at the manufacturing plant in Gwangju, the market may not be there due to the coronavirus outbreak.

The Auto 5000 project in Wolfsburg, Germany, which inspired the low-wage, co-growth model in Gwangju, ended in failure.

In the German project, wages were lowered to 80 percent of the average, and working hours were cut to 35 per week. Eventually, the wage level rose to the industry average after multiple salary negotiations took place. Volkswagen eventually absorbed the Auto 5000 project.

“Signs of trouble were already evident, since the model does not have specific plans on how it will convince workers to do the same job with less pay and how it will materialize its amateur business strategy,” said Lee Ho-geun, an automotive engineering professor at Daeduk University.

“Those involved in the Gwangju model need to stop politicizing it and judge whether the details of the model are viable in terms of business.”

BY PARK SEUNG-WOO [kang.jaeeun@joongang.co.kr]
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