Daewoo staves off plant shut-down

The Daewoo conglomerate is crushed by debt

South Korean car maker Daewoo Motor is getting ready to re-open two of its factories, after persuading its most important parts supplier to resume deliveries.

Korea Delphi Automotive Systems had demanded that deliveries should be paid for in cash, after Daewoo Motor was declared bankrupt by its creditors.

Two of Daewoo Motor's assembly plants, in Pupyong and Kunsang, ran out of parts on Thursday and had to cease production - for the second time since the company applied for receivership in November.

The Pupyong plant is Daewoo's largest car factory in Korea, and had been idle for the past three weeks. Car production resumed only on Monday, after creditor banks promised to provide fresh loans.

The company has promised to cut 3,500 jobs, as it tries to shrink production in line with demand.

Crushed by debt

Daewoo Motors is just the latest part of the huge Daewoo conglomerate to fail. Like its sister companies, the firm was crushed by debts run up during a hasty expansion programme in the 1990s.

When Asia's financial crisis struck, Daewoo found it difficult to generate enough cash to pay its creditors.

The company is estimated to have assets worth about $15bn, and a slightly larger debt burden.

Take-over hopes

The South Korean government is pressing for a quick restructuring of the country's debt-burdened industry, and Daewoo Motor's management is currently trying to find a buyer for the firm.

DaimlerChrysler and its South Korean partner Hyundai have already said they are not interested in Daewoo.

US car giant Ford briefly pondered buying Daewoo Motor this summer, but walked away after taking a closer look at the company's books.

Since then, there is just one joint bid left on the table, submitted by General Motors and its Italian partner Fiat.

Korea Delphi Automotive Systems describes itself as a "business partner" of Delphi, the components supplier of General Motors, and is itself a former part of the Daewoo empire, once known as Daewoo Automotive Components.

No sense of urgency

But now that the creditors have agreed on a restructuring plan, Daewoo's management does not seem to have a sense of urgency for a sale anymore.

Daewoo Motor chairman Lee Jong-dae told the news agency Reuters that South Korea was in no hurry to sell the automaker.

He also added that he would not "be surprised if the talks [with General Motors] break down".

And he said he was prepared to talk to other potential bidders - including arch rival Hyundai - about selling them some of his firm's overseas factories.

Daewoo operates several factories in India and Eastern Europe, and has a design centre based in England.