GM signs off on Daewoo deal

Daewoo's share of the home market has halved in three years

After two years of negotiations, US car giant GM has sealed a deal giving it key assets of bankrupt South Korean peer Daewoo Motor for $251m in cash.

GM has taken a 42.1% stake in a joint venture with Daewoo's creditors, who will hold 33% with the other 24.9% going to GM partners.

GM is investing $400m and the creditors $197m, while the new joint venture will assume $573m in debt.

Another $2bn in long-term credit will come from the creditors, led by the Korean Development Bank (KDB).

The signing was not without incident. Unionised workers are still unhappy about the likely effects of the deal and 50-60 workers occupied the Seoul hotel where the signing was meant to take place, forcing a change of venue to the KDB headquarters.

First steps

The deal marks the first completed restructuring in the wake of the collapse of several of Korea's manufacturing monoliths following the Asian currency crisis of 1997.

The massive debts hanging round the necks of the chaebols, as the huge conglomerates are known, meant insolvency for some - including the Daewoo group, whose debts topped $80bn.

Daewoo Motor's share of that was about $17.5bn.

Now, though, the deal could open the door for further foreign investment.

Dr. Paul Niewenhuis from Cardiff business school told the BBC's World Business Report the deal should give the Korean economy a boost.

"It certainly shows foreign confidence in Korea for the longer term," he said.

Pick and choose

The deal means GM gains access to one of the fastest-growing car markets in the world, and one in which most customers still prefer domestic brands.

Over 1.4 million cars were sold in South Korea last year, of which 170,000 were from Daewoo - a market share of about 12%, down from 20% three years ago. GM sold less than 300.

It is taking on only two of Daewoo's four Korean plants, together with one in Hanoi, Vietnam, and nine sales subsidiaries in Western Europe and Puerto Rico.

Of the two remaining Korean factories, one - with the most union militancy - will be run by creditors under a six-year agreement to feed the joint venture's plants with parts and supplies.

The other, and the remaining 15 elsewhere in the world, will either have to be sold separately, closed or added to the supply deals.

Daewoo's plant in Egypt - originally seen as part and parcel of the deal - has been excluded, along with a dozen factories in Poland, Uzbekistan and elsewhere.

Resuscitation

As for Daewoo, the deal at least ensures continuity.

Once the flagship arm of the mighty Daewoo Group, the company has had to rely on the generosity of creditors since the parent collapsed in 1998.

The long-drawn-out negotiations have almost broken down a number of times, not least because Daewoo's unionised workforce has been deeply unhappy about the likely layoffs.

They also disapproved of the way GM has been able to pick and choose the plants it wants.

GM has been seen as holding a strong negotiating position ever since Ford pulled out of the bidding in September 2000.