General Motors moves in on Daewoo

Which driver will steer Daewoo's fortunes?

The world's largest car company, General Motors, has reportedly put in a surprise bid to buy Daewoo Motor of South Korea.

The head of South Korea's Financial Supervisory Commission (FSC), Lee Keun-young, had been quoted by news agency Yonhap as saying that GM's "letter of intent" had been passed on to the conglomerate's creditors for consideration.

However, a FSC spokesman later would only confirm that negotiations with GM were underway. A formal announcement on a deal with GM is now expected on Monday, and should come from Korea Development Bank, Daewoo's main creditor.

Daewoo Motor is burdened by huge debts, run up by its parent company, the now-bankrupt Daewoo 'chaebol' - one of the conglomerates that still dominate South Korea's economy.

The Seoul government has been desperate to sell off Daewoo, hoping to use the money to bail out other troubled sectors like the banking industry.

One potential buyer, GM's top rival Ford, recently abandoned plans to take over Daewoo after having take a closer look at the company's books.

Its withdrawal severely shook market confidence in South Korea's economic reform program.

Ford had originally offered to pay $6.9bn for Daewoo.

Offer letter

Now it is GM's turn again. The US car giant had been seen as Daewoo's most likely partner, following a 15-year alliance with the South Korean company that lasted until 1992.

The head of South Korea's Financial Supervisory Commission, Lee Keun-young, told news agency Yonhap that GM's "letter of intent" - addressed to the "Corporate Restructuring Committee of Daewoo Companies", would now be passed on to the conglomerate's creditors for consideration.

According to Mr Lee, Daewoo Motor will be sold as one "package" - including all its subsidiaries.

It is the creditor's preferred option, although they have indicated that they could break up the firm and sell off its components if they cannot find a buyer.

Daewoo is South Korea's second largest car maker, and has also factories in India, Poland, and a design centre in the UK.

Hard sell

The South Korean government has found it difficult to sell Daewoo Motor, which collapsed in August 1999 and has since been kept afloat by emergency cash injections.

In June, government officials chose Ford as preferred bidder for Daewoo, shutting out joint offers from GM with Fiat, and Daimler Chrysler with Hyundai, South Korea's largest car maker.

The Daimler/Hyundai group recently confirmed that it would not step in after Ford dropped out of the bidding.

An analyst at investment bank Credit Suisse First Boston said creditors would be "fortunate if Daewoo Motor and related firms are sold at three trillion won" ($2.7bn).