General Motors Co. (GM - Free Report) is in troubled waters after workers in its South Korea plant announced a strike related to salary and production volume issues. The company is already facing declining earnings in South Korea due to a stronger won.
General Motors workers are paid in accordance to a wage scheme designed in 1953. However, workers are demanding a $110 rise in their monthly salary along with the plea for a one-time bonus. The bonus is decided according to the Supreme Court rule of fixed bonus issued last year. However, workers insist on a new contract with several statutory benefits including overtime allowances and severance pay, in proportion to base wages.
South Korea is one of the largest manufacturing bases of General Motors in Asia. The automaker produces nearly all Chevrolet vehicles in the country and exports them to Europe. General Motors Korea operates through four manufacturing plants in the country and an assembly plant in Vietnam. However, General Motors plans to stop selling the Chevrolet brand in Europe by the end of 2015. As a result, the Korean workers are also demanding for increased production in apprehension of retrenchment going forward.
General Motors’ South Korea CEO Sergio Rocha had warned the employees of dire consequences if they go on strike. He feared reduced production as well as job security of the workers. However, 69% of workers, totaling about 14,016, voted for the strike for the fourth consecutive year. Strikes in Korea are a common phenomenon and happen almost every year. However, the strike may continue longer than usual this year.
General Motors, along with automakers like Hyundai Motor Co, is facing problems with the current wage system. Notably, a revision in the wage structure will lead to higher labor costs for the automakers. The workers of Renault SA's South Korean unit also announced a strike concerning wages last week.
Earlier this week, General Motors announced a temporary production halt at its Port Elizabeth assembly plant in South Africa. A strike by the components suppliers compelled the automaker to undertake this strategy as a last resort.
Wage negotiations between the National Union of Metal workers of South Africa (Numsa) and the Steel and Engineering Industries Federation of Southern Africa (Seifsa) also failed to resolve the issue. Seifsa offered a 10% hike in payment for the lowest paid workers. However, Numsa demanded a 12% raise.
General Motors currently holds a Zacks Rank #3 (Hold). Some better-ranked automobile stocks worth considering are China Automotive Systems Inc. (CAAS - Free Report) , Wabash National Corp. (WNC - Free Report) and BorgWarner Inc. (BWA - Free Report) . China Automotive and Wabash National sport a Zacks Rank #1 (Strong Buy) while BorgWarner carries a Zacks Rank #2 (Buy).