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.