SEOUL (Reuters) - General Motors Co will propose a base wage freeze and no bonuses this year along with a suspension of some worker benefits at its money-losing South Korean unit to cut costs, according to an internal letter that Reuters reviewed on Friday.

Members of the GM Korea union, a subcommittee for Korea Metal Workers' Union, hold a meeting to demand GM Korea withdraw its plan to shut down Gunsan manufacturing plant in Gunsan, South Korea February 14, 2018. Yonhap via REUTERS

GM is bracing for a major showdown with its South Korean unionised workers, after the U.S. automaker announced last week it would shut a plant by May in the city of Gunsan, in southwest South Korea, and decide the future of its remaining three plants in the country within weeks.

GM executives have complained that South Korea’s relatively high wages and unyielding unions have contributed to its problems in the country.

To “improve the manufacturing competitiveness of GM Korea,” GM will propose freezing base wages this year and limit future wage increases below inflation, the letter said.

“It is impossible to pay 2018 bonuses/one-time payments in 2018,” GM said in the letter, sent to team leaders, laying out proposals for this year’s wage talks with the union.

GM Korea has paid about 10 million won ($9,285.83) in bonuses to each worker almost every year, company officials have said.

The proposal includes suspending benefits, such as school tuition for employees’ children, gold medals and travel expenses for long-serving workers, and free lunches.

GM has told its South Korean employees the company should trim benefits worth a combined 300 billion won, two sources told Reuters. One of the sources said GM has also asked employees to curb use of corporate cards.

A GM Korea spokesman declined to comment, while a union spokeswoman said it has not officially received the proposal.

TEMPORARY RELIEF

Meanwhile, GM on Friday dropped a request to use its South Korean factory in Bupyeong as collateral for debt, a person with direct knowledge of the matter told Reuters.

At around 5 percent interest, GM headquarters in Detroit has lent its South Korean unit nearly 3 trillion won, out of which 700 billion won comes due at the end of this month.

At a board meeting of its South Korean unit, GM also agreed to grant temporary relief in repaying the 700 billion won debt until the government completes its due diligence of the unit, the person with direct knowledge of the matter said.

South Korea said on Thursday it plans to quickly conduct due diligence on GM’s S.Korean operations and would discuss whether the government would provide financial support to the company.

This came after GM agreed to play “a responsible role” in normalising its South Korean operations while other stakeholders also “share the pain.”

“GM told board members that there is progress with its talks with the government, but little progress with talks with its labour union, which is a problem,” said the person with direct knowledge of the matter.

GM has been seeking concessions from the South Korean union, and government support to engineer a turnaround.

South Korea was once a major export base for GM, but saw slumping sales in recent years as GM scrapped its Chevy brand in Europe.

The ruling party on Friday urged GM to come up with a “viable, long-term turnaround plan” for its South Korean operations.