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GM’s Korea Problem Lingers On

Posted by: Ihlwan Moon on October 15, 2009

Even as General Motors is trying hard to ramp up its product pipeline to stop a slide in its market share, the company’s management is still struggling to rescue its troubled Korean unit. GM CEO Frederick A. “Fritz” Henderson said in Seoul on Oct. 15 he had held “very constructive” talks with the government-run Korea Development Bank (KDB) on ways to provide fresh support for GM Daewoo Auto and Technology. But Henderson and other top GM executives admit that they have yet to secure enough liquidity to navigate the Korean unit through the global recession.

Henderson, visiting Korea after eight months of negotiations between GM and KDB, the Korean unit’s main creditor, confirmed that GM would inject fresh capital in GM Daewoo. The American auto giant, which owns 51% of GM Daewoo, will take part in the Korean unit’s plan to raise $425 million by selling new shares to existing shareholders, according to GM officials. Other shareholders have yet to agree to take up the rights offer. “I would say the discussions were very much focused on how we, collectively as shareholders and with KDB as the principal creditor of GM Daewoo, can make GM Daewoo successful in the future,” Henderson said of his talks with the bank.

But all indications are that GM has yet to persuade KDB to offer new loans that the Koran unit is seeking. The bank, which also owns 28% of GM Daewoo, has been demanding that GM makes commitment to maintaining a big presence in Korea. KDB Chief Executive Min Euoo Sung said last week it would be difficult for the bank to provide new loans to GM Daewoo due to its “deteriorated financial status,” unless GM itself plays “a major role” in stabilizing the Korean unit. The local media has reported that KDB also asked that GM and its Daewoo subsidiary share licenses for vehicles they develop jointly and that the bank be allowed to participate in the management of GM Daewoo as part of a long-term development plan for the automaker.

GM Daewoo has requested additional loans from KDB and other creditors, after exhausting a $2 billion credit line. The South Korean unit is a key hub in Asia for GM, responsible for developing and designing small cars.

Reader Comments

GM Daughter

October 15, 2009 11:09 AM

Let Daewoo die. The joint venture with the Chineese can provide enough sub-compacts for the pipeline without hemorraging so much cash. Plus the Chineese government will make loans the Koreans won't.

John Doe

October 15, 2009 12:17 PM

The problem of GM Daewoo is unique in that Korean government actually wants to take back GM Daewoo from GM, while GM is desperately trying to hold onto GM Daewoo. Why is this? Because GM Daewoo is supposed to be the consolidated engineering hub for GM's mass-market FWD passenger cars after Opel sales to Magna and Sber Bank, and the possible loss of GM Daewoo would greatly diminish GM's ability to engineer new cars and platforms post-bankruptcy since GM's US engineering center focuses on Cadillacs and trucks only.

Korean government wants GM Daewoo back because GM Daewoo has gained world-class auto engineering capability since the sales to GM back in 2002 and seeks to establish a second world-class Korean domestic automaker like Hyundai-Kia on the foundation of GM Daewoo by selling it to one of Korean capitals, deep-pocketed Samsung and POSCO named as possible candidates to build this second world-class automaker.


October 15, 2009 4:37 PM

Why don't they just sell the division and the plant(s) to Hyundai. They can make it work!

John Doe

October 15, 2009 10:45 PM

GM Daughter, that's exactly what Korean government wants to see and exactly what GM's trying to prevent. GM has now only one overseas passenger car engineering center left and that's Daewoo. Nowhere on earth could GM engineer cars as quickly and cheaply as they could do right now at Daewoo, not even Chinese could match the speed of Koreans going from start to product launch in just two years. GM's Chinese JV is not an option because Chinese don't have enough experience in auto engineering yet and beefing up GM's Chinese operation would only benefit GM's Chinese JV partner SAIC. Korean government knows that GM needs Daewoo and they want Daewoo back too, so this is why they have been unwilling to bail it out.

mr dave

October 16, 2009 4:29 PM

I agree let Korea buy them back. Any truly talented engineers could be wooed back to the US or just home grown here. And as for 'giving Korea exactly what they want' have you forgotten that Hyundai was 'forced' to buy Kia by the Korean government because it was failing?? Daewoo has very poor quality and that's one thing that GM doesn't need!!!

Mr T

October 20, 2009 2:47 AM

Listern to John Doe - he knows what he's talking about.


October 24, 2009 12:32 PM

Whatever the decision, this issue will have an impact on both the American and South Korean economies. Asia Chronicle provides some good insight regarding the political and economic situation in Korea. Worth a read I think.

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