GM says South Korean unit will file for bankruptcy if no union concessions by April 20

SEOUL (Reuters) - General Motors said its loss-making South Korean operations would file for bankruptcy if its union did not agree to cut labor costs by April 20, heaping pressure on workers and the South Korean government to swiftly agree a rescue plan.

The U.S. automaker announced in February it would shut down one of its four factories in South Korea, and asked for government support and union concessions to stay in South Korea.

Barry Engle, the President of GM International, also told the union leader of GM Korea on Monday the unit needed to secure $600 million in operating funds by the end of April, the union said in a document reviewed by Reuters.

A GM Korea spokesman said the union concessions were needed for the automaker to present a confirmed turnaround plan to the government by April 20. GM wanted the union to reach a wage deal by the end of March, he added.

If GM Korea failed to present the plan by April 20 it would have no choice but to file for bankruptcy, the spokesman said.

The crisis at GM Korea has created challenges the administration of President Moon Jae-In, who came to power last year promising to prioritize job creation.

A government official told Reuters GM appeared to be “using threats to ramp up pressure on the union to make concessions by the end of March”. He spoke on condition of anonymity because of the sensitivity of the issue.

Engle, based in Detroit, has made a flurry of visits to South Korea this year. He met the chairman of GM Korea’s second-largest shareholder, state-funded South Korean Development Bank, on Tuesday morning, followed by vice industry minister Lee In-ho later in the day, according to the GM spokesman.

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South Korea was for years a low-cost export hub for GM, producing close to a fifth of its Chevy global output at its peak.

But the automaker’s decision to exit other unprofitable markets have exacerbated problems for GM Korea.

Almost 2,500 workers at GM Korea, some 15 percent of its staff, have applied for a redundancy package that the U.S. automaker is offering as part of a drastic restructuring, union officials have said previously.

According to the union, Engle said GM Korea may consider more voluntary redundancies for the remaining 680 workers at the Gunsan factory which will face a shutdown by May.

Engle said the South Korean government should also promise to provide support for GM Korea by April 20, the union document said.

Earlier this month, KDB began a due-diligence review of GM South Korea to decide whether to inject more capital into the unit. The review is expected to be completed by mid-May.

The union said earlier this month it will not demand a pay rise and bonuses this year, but instead wants the U.S. automaker to provide a future production plan and job security.

GM Korea still wants the union to agree to cut benefits worth 80-90 billion won ($74-$84 million), a union official said on Tuesday. The automaker had already achieved cost cuts of over 500 billion won through union concessions on wages and bonuses and voluntary redundancies, the union official added.

The logo of GM Korea is seen at its Bupyeong plant in Incheon, South Korea March 12, 2018. Picture taken March 12, 2018. REUTERS/Kim Hong-Ji

GM Korea plans to slash 5,000 jobs, or about 30 percent of its workforce, but keep production steady if Seoul agrees to its $2.8 billion restructuring proposal, according to a document seen by Reuters earlier this month.

GM Korea, which employs nearly 16,000 people, has said that without new funding from its major shareholders it would face a first-quarter “cash crisis”.

GM owns 77 percent of its South Korean unit GM Korea, while KDB owns a 17 percent stake. GM’s main Chinese partner, SAIC Motor Corp Ltd, controls the remaining 6 percent.

GM headquarters in Detroit has lent its South Korean unit some $2.7 billion won, which it offered to swap into equity if it gets government support and union concessions.

GM last month agreed to grant temporary relief in repaying 700 billion won in debt due at the end of February, with more debts due in the coming months.

Reporting by Hyunjoo Jin; Editing by Lincoln Feast