GM Losing Its Grip On Daewoo?

Edward Niedermeyer
by Edward Niedermeyer

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 l et 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.

Edward Niedermeyer
Edward Niedermeyer

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  • Menno Menno on Oct 07, 2009

    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.

  • Icon Icon on Oct 09, 2009

    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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