By Rha Hae-sung



With General Motors (GM) Korea's surprise decision to shutter its Gunsan plant, rocking Korea's regional economy and automotive industry, experts are warning that domestic automakers might suffer the same fate as GM.



"Korea's automakers had been competitive in exporting small and mid-sized cars, but soaring labor costs are now sapping their growth," said Korean Automobile Manufacturers Association (KAMA) Chairman Kim Young-geun.



Rigid labor markets and the unions' strong position at the bargaining table have been seen as major causes for the fall in potential growth of the domestic automobile industry.



Hyundai Motor's union went on 24 strikes last year, demanding better wages. The auto maker claimed the strikes caused 1.7 trillion won ($1.5 billion) in damage. Profits fell below five trillion won for the first time since 2010.



GM Korea's plant in Gunsan operated at 20 percent capacity last year, while it still paid 80 percent of employee wages. Moreover, the Gunsan plant's productivity was only one-third that of the Bupyeong plant, GM's other factory in the country.

Wages, though, at the Gunsan plant for individual workers averaged 87 million won in 2016, a 20 percent increase in three years.



The average wage of the country's five major auto makers was 92 million won in 2016, more than that of the world's top auto makers. Toyota, a Japanese car maker and Volkswagen, a German automobile manufacturer, for instance, paid 91 million won and 80 million won respectively.



A wage increase is supposed to be a positive indicator of the country's economy. However, when it does not relate to productivity, it might be signaling a disastrous restructuring as seen at GM's Gunsan plant, experts say.



According to Hyundai's latest report on labor productivity of its automobile manufacturing factories in 2014, the Ulsan plant manufactured a vehicle in 30 hours while the same process took 15 hours at its Alabama factory.



Amid growing concerns about labor-management relations in the country's automotive industry, some companies and unions have made successful steps in improving their relations.



SK innovation, the country's leading oil refiner and battery maker, had customarily suffered from tough, prolonged wage negotiations with its union every year. Last year, the conflict reached its peak when the union sought a 5 percent increase in base pay. The company and union eventually went into mediation under the National Labor Relations Commission, which ended with a 1.5 percent wage increase.



To put an end to unproductive negotiations, the company's management and its union agreed last year to increase wages annually in line with the local inflation rate.



The battery maker used a Statistics Korea consumer price index (CPI) as a base for salary increases. Additional wage increases may also be offered depending on an employee's tenure and performance.



The novel attempt to link a pay raise with the inflation rate of the previous year is expected to resolve the annual wage dispute that has long plagued relations between the union and management at the company.



French car maker Renault also has a history of overcoming severe disputes at its unit in Spain.



Renault's Valladolid plant there was on the verge of closing after the global financial crisis damaged the company severely.



Because labor costs were high in Spain, the company considered closing the plant, which sparked a wild backlash and strikes.



However, the union proposed a wage freeze and refused extra payments for weekend work, which led Renault to reconsider its withdrawal from Spain.



As labor-management relations calmed down and manufacturing costs were optimized, Renault began to invest in the plant strongly.



As a result, working conditions improved with the rising investment and better productivity.

