SEOUL -- GM Korea reached a tentative agreement with union leaders Monday on freezing employees' salaries and cutting their benefits -- just an hour before a deadline set by the carmaker's management to file for bankcruptcy protection -- allowing the unit of General Motors to remain afloat amid a liquidity crisis.
The Incheon-based unit of the U.S. carmaker announced that it had reached an agreement with the labor union on a restructuring plan, which will keep workers' wages at the current level as well as lowering subsidies for vacations and children's tuition fees, among other measures. The agreement is subject to approval by union members who will vote on the issue on Wednesday and Thursday this week.
"Ratification of the tentative agreement is critical to our viability plan and securing support of the Korean government and our shareholders, KDB and GM," GM Korea's chief executive Kaher Kazem said in a statement, referring to state-run Korea Development Bank, which owns a 17% stake in the company. "The labor union has demonstrated its commitment and we continue to work with our other key stakeholders to gain their support."
The announcement comes after GM Korea threatened to file for court-managed bankruptcy protection if the union did not go along with the restructuring plan. South Korea is an export hub for the U.S. carmaker to supply Europe and emerging markets. But the unit sustained 3 trillion won ($2.82 billion) in net losses over the four years through 2017 due to a drop in factory output tied to factors including the sell-off of GM's Opel operations in Germany.
GM decided in February to close one of its three assembly plants in South Korea. Executive Vice President Barry Engle, head of international operations, asked the labor union to accept a wage freeze and a 100 billion won cut in employee benefits.
The company has also asked the South Korean government to waive some of its tax liabilities. The government said it would help get GM Korea's operations back on track as soon as possible to support the agreement with the labor union.
"We will discuss with GM how to normalize the company's management. We will conduct due diligence on the company as soon as possible under our principles," the government said in a statement.