NEWS ANALYSIS: GM, Ford Mull Over Daewoo
- By Sang-Hun Choe
- Feb. 22 2000 00:00
SEOUL, South Korea -- For most of the 1990s, the Daewoo conglomerate spread its wings, opening factories in Asia, the Middle East and Eastern Europe.
The rapid expansion fit with the company's name - "big universe" in Korean. But then Asia's economic crisis hit, Daewoo's sales plunged, and it was crushed by a mountain of debt, leading some English-speaking Koreans to dub it "Dae-woe."
Now the struggling conglomerate is being broken up by its creditors, and potential buyers are paying particular attention to Daewoo's automotive operation and its access to Asia's markets, which are starting to recover from their slump.
"These markets are going to grow. They're good opportunities if you run your business well. We need to get position in these markets," Richard Wagoner Jr., president and CEO designate of General Motors Corp., told reporters recently.
In an effort to recover at least some of the $82 billion owed by the conglomerate, banks are planning to auction off Daewoo's 22 affiliates, which produce cars, trucks, ships, textiles and pesticides.
Daewoo Motor, South Korea's second biggest automaker and the main engine for the conglomerate's global expansion, was put on the block last week.
GM, which already has a foothold in Asia with partial ownership of Subaru, Isuzu and Suzuki, confirmed it would bid. Ford Motor Co., which controls Mazda's operations, is considering the opportunity.
South Korean media said DaimlerChrysler, Fiat and Volkswagen also were interested, and Hyundai Motor, which has 70 percent of the South Korean car market with its sister Kia Motor, expressed interest in finding a foreign partner to make a joint bid.
Ford CEO Jac Nasser, in a meeting with journalists before the banks formally solicited for bids, said his company would take a serious look at Daewoo, but would not buy just to block GM.
"We're not motivated to any great extent by what our competitors do. I certainly wouldn't try to fit into our strategy an action that's a spoiler action," Nasser said. "The questions are: 'Is the business equation right? Are the cultures right?'"
If Ford won the bidding for Daewoo, it could challenge GM for world leadership in automaking. GM now sells more than 8 million vehicles around the world each year, while Ford's sales are just under 7 million. Daewoo Motor's 17 factories produced 758,500 cars and trucks in 1999.
On the surface, Daewoo Motor doesn't seem a good buy - its debt stands at $ 16.3 billion.
But acquiring it would give access to the closed auto market in South Korea, where buying a domestic car is often synonymous with patriotism. Only about 2,300 imported cars were among the 910,000 automobiles bought in South Korea last year.
The Daewoo assembly lines on South Korea's west coast also are the country's most modern and cost-efficient, and would provide a foreign owner with a stepping stone into China's big market.
Daewoo Motor has factories in China, too, and a dozen other countries, including India, Vietnam, Iran, Uzbekistan, Poland and Romania. It sold 187,039 cars and trucks in Poland last year, surpassing Fiat to become the No. 1 carmaker there.
The dismantling of the Daewoo conglomerate marks a shift for South Korea, a poor agrarian country that developed one of the world's biggest economies by nurturing a few core industries with cheap credit and protection against foreign competitors.
Those policies encouraged Daewoo on its fateful overexpansion into developing countries and former communist states, paying for it mostly with borrowed money.
The corporate empire all but collapsed after Asia's currency crisis began in July 1997, causing slides in consumer buying across the region and leaving Daewoo short of cash to pay off short-term loans.
Creditor banks say they will select one or two bidders for Daewoo Motor by May and hope to close a deal two to three months later.
Whatever the outcome, South Korea's car market is being opened up to foreign participation. The French carmaker Renault already is negotiating to take over Samsung Motors, which is in court receivership, and President Kim Dae-jung says foreign investment is the only way to sustain the economy's rebound.
Many consumers are welcoming the changes, hoping domestic automakers will be pressured into bringing prices down and improving their products.
"Now it's time for them to face and survive the real competition, and for us to have new choices," said Kim Bae-ho, one of Seoul's 70,000 taxi drivers.