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JOHN MELLOR on the disaster that is Daewoo

Daewoo, approaching insolvency from the jaws of bankruptcy must be wondering "if only"

6 Nov 2000

RIGHT about now, as their company clutches approaching insolvency from the jaws of bankruptcy, the people at Daewoo Motor Co. must be getting a bad case of the "if onlys".

If only Chairman Kim Woo-Choong had not been so dogmatic and let General Motors walk away as a partner in 1992.

If only there had been some wise heads from GM on the Daewoo board to temper the house of cards that Chairman Kim built from fictitious returns on unwise borrowings.

If only someone had explained that if you borrow money you eventually have to pay the piper.

If only management had heeded the warning of General Motors 10 months ago not to be lulled by the siren songs of companies like Ford and DaimlerChrysler.

If only.

Back in January Daewoo had a live buyer for its motor division - General Motors.

GM had already factored in that if it got control of Daewoo, it would give it entry to the key South Korean market which was closed to Western car-makers and give GM a foothold in some other strategic market in Asia as well.

So convinced was GM that it would get Daewoo, the South Korean car-maker became part of the GM strategy to achieve a 10 per cent share of the Asian market within a few years.

It all fitted nicely. Daewoo was a significant buyer of GM drivelines and many other components from GM. All it had to do was find a way of getting the company without the debt and figure out what to do with a raft of unviable car plants in some very doubtful economic regions.

When Ford, DaimlerChrysler, Hyundai and Fiat suddenly expressed interest, Daewoo's creditors could not believe their luck that major world car-makers were going to be fighting over the debt-ridden company.

GM was pushed aside and the bidding timetable was put in place. But GM was warning that this was a company in serious financial difficulty and that every day it was allowed to bleed would only weaken its position and seriously erode the buying price.

You would expect GM to say that. History shows that all parties but Ford dropped out, Ford was given priority in the bidding process and then pulled out saying it could not afford Daewoo.

If only it had grabbed GM back in January. GM was right. The company has bled so much in the interim that Daewoo is now forced to cut off its fingers and toes.

It is now struggling to pay its workers and plans to sack a third of its South Korean workforce. It is also looking for another cash injection to keep things alive while it holds fresh talks with GM/Fiat.

But things have changed completely. GM can now play very hard ball. It can tell Daewoo that Ford thought so little of the company it did not even bother to put a final price on it before walking away.

Daewoo management says it cannot survive in its own right and now needs both cash and partners if it is to go on. But GM is no longer interested in all the company. It is now negotiating over the plumb bits, leaving the rest for the creditors to swallow.

Just what GM will want is anyone's guess. Clearly the South Korean operations and market access are the jewel in the crown.

There are engine and parts plants in China, car assembly and parts plants in India and modest assembly plants in Iran, the Philippines, Vietnam, Indonesia, Egypt and Romania. There are significant car-making plants in Uzbekistan and Poland, although the Polish plants are subject to debilitating agreements not to decrease the workforce.

Ironically, Ford's intrusion in events has worked in GM's favour. Investment analysts have always seen the logic of GM linking up with Daewoo.

But there has been grave concerns in investment circles that if GM bought Daewoo along with all of the baggage, it would be taking on enormous problems that could weigh down the Corporation's returns and trash its share price.

GM clearly misread the bidding process that allowed Ford to go forward on its own.

But it probably cannot believe its luck that Ford's withdrawal completely changes the nature of the game for it. It is tempting to say GM planned it that way all along and that it was all part of a grand strategy.

If only it was that clever.

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