SEOUL (Reuters) – General Motors Co's South Korean unit said Monday it has reached a tentative wage agreement with its union that meets an important requirement of the US automaker to prevent the company from filing for bankruptcy operation.
With the deal, GM Korea's board has dropped its plan to vote on its bankruptcy petition on Monday, a GM Korea spokesman said.
The US automaker shocked South Korea in February when it submitted a comprehensive unit restructuring plan that included the closure of one of its four factories in the country and the voluntary dismissal of 2,600 workers.
GM has sought union wage concessions, government funding, and incentives to rescue the remaining three South Korean factories.
The GM Korea Board has postponed a decision to apply for judicial bankruptcy protection until Monday night, after the automaker failed to enter into a collective agreement with its union in time to meet a Friday deadline.
"The recent agreement will make GM Korea a competitive manufacturing company," said Kaher Kazem, GM Korea's CEO, in a statement in Korean.
The deal would pave the way for the Korea Development Bank (KDB) [KDB.UL] to provide support, and for GM to provide South Korea with new models to help GM Korea's turnaround, the unit said in a statement.
KDB is GM Korea's second largest shareholder with a 17 percent stake. The automaker in the US owns 77 percent of GM Korea, while GM's main Chinese partner, SAIC Motor Corp., controls the remaining 6 percent.
The government has increased pressure on GM and the union to reach an agreement Without a quick deal, around 150,000 jobs would be at risk for the car manufacturer and its suppliers.
KDB chairman told Reuters last week that the lender could sign a provisional agreement by April 27 to provide financial support for the business should a previous due diligence report last Friday be considered satisfactory prove.
For the past three years, GM has been trying to focus on profitable markets, mainly the United States and China, and new technologies such as electric and automated vehicles.
The South Korean entity, once the backbone of GM's Asian strategy, was hampered by labor costs and harmed by the automaker's decision to withdraw its Chevrolet brand from Europe, an important export market.
The unit still produces more than 1 million assembled or partially assembled vehicles for the US, Europe and emerging markets. These include the Chevrolet Trax and its brother Buick Encore, which are sold in the US.
It is also an engineering and design resource for GM's small vehicles and electric vehicles, as well as home to some of GM's leading global suppliers.
Reporting by Hyunjoo Jin; Arrangement by Jacqueline Wong