By on October 6, 2009

Truth before dishonor (

GM’s Daewoo division is on the verge of being taken over by its largest creditor, the Korea Development Bank, reports the Korea Times. KDB CEOO Min Euoo-sung warns GM:

If General Motors does not play the role of the largest shareholder of GM Daewoo in an appropriate manner, we will start to retrieve loans that will mature this month. General Motors should accept both the financial and non-financial requirements of the creditors. If not, we will collect loans and will not participate in a paid-in capital increase

GM Daewoo lost about $2.6b in forward exchange transactions (a form of currency hedge) last year, exhausting its $2b line of credit with KDB. GM had asked KDB to roll these obligations forward and throw another billion dollars on the fire, a request it then reduced to $835m. The problem is that GM hasn’t raised enough money, or offered a larger equity stake in GM Daewoo. As a result, KDB is forcing GM to raise new equity, share licenses for jointly-developed vehicles and introduce a co-financial officer to look after KDB’s interests. Otherwise, the collections begin, with $100m due this month alone. And interestingly, money isn’t the only issue at play.

GM caught wind of the fact that as many as 40 percent of all Daewoo buyers were actually replacing their Daewoo badges with the Chevy bowtie, bringing their vehicles in line with the look of export-model GM Daewoo Chevrolets. And paying over $200 a pop to do so. As a result, GM might be tempted to let the Daewoo name slip away, in favor of global Chevy branding. Wards [sub] reports that GM denies any plans to do away with the Daewoo name, but that’s likely motivated more by the issues brewing between it and GM Daewoos Korean creditors. After all, the financial crisis detailed above has caused GM Daewoo R&D spending to be cut back, causing stocks to tumble, essentially screwing the Korean banks that are propping GM Daewoo up.

At the same time, GM needs Daewoo to take up the global development slack once it completes a sale of its Opel division. The Korea Development Bank has an obvious interest in keeping its homegrown GM division from becoming a mere engineering sweatshop, developing many of GM’s products without accruing any stock or prestige benefits. GM, on the other hand, has a long tradition of subjugating the needs of its divisions to the corporate interest. But with no money left, GM is facing a creditor takeover at its last remaining major small-car development center. Fritz Henderson will be flying out to try to settle these issues ahead of GM Daewoo’s anniversary in mid-October, but without more taxpayer money on the table it’s difficult to see how the General will finesse this latest crisis.

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17 Comments on “GM Losing Its Grip On Daewoo?...”

  • avatar

    GM had some dellusional idea that all korean car companies are created equal, and that Daewoo would become another Hyundai and propell GMs carline ahead of the competition with their korean designed cars badged as chevys. Look at what happened under Wagoner, almost all car engineering got outsourced to Daewoo and Opel, now leaving the company with near zero IQ for car development. And they think they’re gonna compete with the likes of the Fusion, Camry, Sonata, Altima, etc???

  • avatar

    Call it kizmet (another way of saying karma).

    After all, GM realy screwed over the old Daewoo creditors and bankers when they dragged their feet post-Asian financial crisis, showing the Chinese just how to do it…

    After delaying and delaying, GM got control of only the portions of Daewoo that it “desired” and left one of the major plants to swing in the breeze – saying ‘we may come for you/buy you later – but in the meanwhile you can supply us with cars’ – at the same time that GM yanked the rug out from under Daewoo USA and refused to even supply spare parts for awhile after they’d taken over the South Korean operations.

    Not to mention many of the worldwide operations of Daewoo – all of it for pennies on the dollar.

    Thing is, GM didn’t really buy it up and hold 100% of GMDaewoo, did it? They wrangled with Suzuki to part-own some of GMDaewoo (silent partner – in other words, they just used their money),.

    Otherwise, if it were wholly owned GM company, the bankers in South Korea would not have any leverage at all, would they?

    Daewoo cars were developed with European contract house help inbetween the time that GM owned some of it in the 1980’s (remember the Daewoo built “Pontiac LeMans” imports into the US? They were South Korean cheap knock-offs of the Opel Astra) – and the 2002 ‘purchase’ of controlling interest in most of Daewoo forming GMDaewoo.

    The thing is, GM pulled all the strings and insisted on total control – even down to “demanding” that semi-autonomous companies such as Ro-Dae in Romania stop selling Daewoo cars outside of Romania – then started selling Chevrolet badged, updated Daewoos in Romania !!!

    That was only a softening up of the target since now GMDaewoo has “partnered” again with Ro-Dae in Romania (because it is Europe’s lowest wage-area and they obviously wanted the capacity for “Chevrolets”).

    Sharp business practices (i.e. crooked and deceitful behavior) will eventually catch up to a company. And this has happened to GM in spades.

    Couldn’t have happened to a better company…

  • avatar

    Daewoo would be smart to retain their Daewoo name in case / when GM totally collapses – perhaps just perhaps they can wrangle a reverse-takeover of the worldwide distribution network and stay in business – selling newly badged Daewoos through ex-Chevrolet dealers (in an absolute reversal of what happened in much of the world after 2002)

  • avatar
    John Horner

    What the heck are industrial companies doing playing the financial market roulette tables? Loosing over $2 billion in borrowed money on currency speculations should be illegal for an industrial enterprise.

  • avatar

    Good riddance to bad rubbish. If Daewoo goes under and/or gets taken from the General, then it will save Chevrolet in America from becoming nothing more than a remarketer of cheap nasty 3rd world cars.

  • avatar

    Here we go – more of the same…..

    Gov’t puts millions of US Dollars, Canadian Dollars, Euro’s, and now Korean Won into local GM subsidiary. Local government talks tough. GM stalls. Gov’t caves in.

    Fritz isn’t going to South Korea next month to cut deal with a bunch of bankers. He’s going to spell out to local politicians and union leaders just how many jobs are going to be vaporized when and if these ‘loans’ come due.

    This one will make Fritz 3 – 0 vs the various local governments.

  • avatar

    @John Horner

    Industrial companies that ship most of their product to another country are wise to have foreign currency hedge funds, in my opinion.

    From the WSJ –

    “GM Daewoo exports 90% of its vehicles made in Korea. ”

    @ MasterOfTheJawan

    As a GM employee, I can say without deceit that GM still has the ability to design vehicles in numerous locations around the globe, Shanghai; Sao Paulo; Russelsheim; Bupyeong; Toluca; Port Melbourne; Warren, MI.

  • avatar
    John Horner

    ChristyGarwood: Prudent foreign currency hedges which support the normal routine business of an industrial company do NOT throw off multi-billion dollar losses. The only way to loose that kind of money is to be speculating, which is different from hedging your actual business transactions.

  • avatar


    Your list of engineering sites is very interesting, but i can’t help thinking how many of these sites are experienced in engineering a complete platform from the ground up.
    Without any insider knowledge i would guess Rüsselsheim, Port Melbourne, Warren, MI.

    But the ITEZ in Rüsselsheim is going to Magna @ co with the rest of (New) Opel, so maybe you should strike it of your list.

  • avatar

    Opel going…now perhaps Daewoo?

    I am starting to wonder how small GM will be in 2010 (the magic year!).

    I’m also starting to wonder, will we soon be hearing scary financial news (long hidden under fiscal sleight of hand) from GM Latin America?
    Will a nasty leveraged situation suddenly materialize with Shanghai Auto and/or the govt of the PRC?

    Inquiring minds want to know!


  • avatar

    Silly question, I suppose, but how much of GM’s global income comes from Daewoo built product?

    According to this,

    GM sells maybe 5K a month or so…. but what’s the profit margin? Can’t be much. This article says maybe $1500 per car.


    By the way the article raises another question – Does GM really NEED or even want Daewoo now?

    The article is about GM’s promise to the government to build small cars at the Orion plant.

    Do they need to build small cars in two locations in competition with each other? Can the afford to? Will it look like political sabotage if they still build Korean small cars while the UAW U.S. small cars struggle?

    Interesting questions, I think.

  • avatar
    Robert Schwartz

    No more Aveoes?

    Say it ain’t so.

  • avatar

    So where’s GM going to get its small cars from if there’s no Daewoo and no Opel?

  • avatar
    Greg Locock

    The way I heard it (read it in the Korean press) the Korean banks were insisting that Daewoo become a full range vehicle Product Development centre, so this article runs directly counter to that.

    “a mere engineering sweatshop” PD is a big, influential, and profitable part of an automotive OEM’s operation.

    “Shanghai; Sao Paulo; Russelsheim; Bupyeong; Toluca; Port Melbourne; Warren, MI”
    Incidentally it is a bit hard to believe Port Melbourne is going to be part of some global PD scheme, at least in the short term, as they’ve just let another, or the last, 200 engineers go.

  • avatar

    GM caught wind of the fact that as many as 40 percent of all Daewoo buyers were actually replacing their Daewoo badges with the Chevy bowtie, bringing their vehicles in line with the look of export-model GM Daewoo Chevrolets. And paying over $200 a pop to do so.

    Sorry, I don’t understand this. Who or where are the Daewoo buyers who want to pretend they have Chevrolets?

  • avatar

    folkdancer, Daewoo brand is used in South Korea by GMDaewoo to sell their cars there. This has been the name of the company and products for several decades, and they presumably didn’t want to start from scratch.

    Other similar historical “brandings for nations” still occur elsewhere. In the United Kingdom, Opels are badged as Vauxhalls (since the 1970’s when the last British engineered Vauxhalls were actually built). Interestingly, that’s GM too (or “was” GM).

    Likewise, the Opel Astra was “branded for nations” (i.e. the United States and Canada) as a Saturn Astra for about 18 months or so.

  • avatar

    Interesting article! But I don’t quite agree to it and my conclusion is ‘GM Winning Its Grip on Daewoo!’ Here is my perspective:

    As known, foreign exchange hedging is an accepted business practice to minimize the risk level associated with currency fluctuations when selling products in export markets. In fact, due to the weaker Korean won last year the hedging strategy of most of the companies, whose most of sales come from exports, worked against them. On the other hand, the hedging process generates additional profits if the currency is positive to companies.

    As far as I know, the negotiation between the KDB and GM Daewoo is making progress, but the KDB’s comments seem to intend to push GM Daewoo to have positive position at the negotiation. Considering the impact of the automotive industry and GM Daewoo’s self-help efforts in Korea, it is expected that the KDB will give positive action to the company.

    And it doesn’t seem to be true that 40 percent of all GM Daewoo buyers are replacing their GM Daewoo badges with the Chevy bowtie. As far as I know and heard, it is very small number and a majority of GM Daewoo cars are badged with its own logo on the road without a doubt.

    I don’t think GM will take away GM Daewoo brand. There are a few reasons. First of all, GM would not want to spend huge amount of money to be required for the brand change in Korea. Second, if the GM Daewoo brand is replaced into Chevy, it would be regarded as a foreign brand car affecting the sales of the company due to strong patriotism of Koreans. Third, GM’s local brand strategy including GM Daewoo, Holden, etc. has been really worked out.

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