GM-Daewoo: Grasping At Straws?

Bailout and reorganization gave GM the fresh start it so desperately needed in the US, but other governments have been decidedly less sympathetic to GM’s plight. Germany saw an opportunity to free Opel from GM’s grip, and now the Korean Development Bank has GM up against the wall over the future of GM-Daewoo. Reuters reports Fritz Henderson flew to Korea to meet with Daewoo’s creditors and put a cheery face on the situation. But calling the talks “very positive” is more tribute to Fritz’s unflagging optimism than an indication that GM-Daewoo is almost out of the woods. GM has no choice but to fight for its only remaining small car development center, the only question is with what?

GM-Daewoo is so far in debt to the KDB that it has no choice but make a public equity offering, a move that Henderson says he supports. But the issue that the KDB wants resolved is how much GM will contribute to such an offering. Without a sweetened pot, it’s hard to imagine investors going to go head-over-heels for a deeper stake in an indebted, sales-losing, shackled-to-GM carmaker. On the point of this contribution however, Fritz was… incoherent.

GM has resources around the world. Resources can be used not only from the U.S., including operations here in Korea. We are able to provide support, if necessary

The problem is that this is only moderately true at best. Daewoo’s offering will be $425m at minimum; the KDB wants that amount doubled. But GM is forbidden from using any of its $50b US bailout money to rescue its foreign division, and where else is The General going to find the cash to hold off its Korean creditors? Fritz’s statement has the vague confidence of someone deciding which leg to cut off to stay alive.

And even if GM does come up with enough money to pull off an equity offering, it has no way of stopping KDB-initiated reforms in Daewoo management. The bank has said it wants a more prominent role in managing the firm, including hiring its own financial officer. The KDB also wants GM to share licenses for jointly-developed vehicles. And even if GM comes up with some money for the share offering, the KDB is likely to expand its share beyond its current 28 percent. In other words, the bank is going to get its way. Daewoo is slip-sliding away, and all of GM’s small car eggs are still in that basket.