Decision Should Consider Auto Industry's Long-Term Outlook

Both Korea and the United States are watching their respective third-largest automakers fall victim to the global economic recession.

While Chrysler has already come under bankruptcy-court protection in the United States, Korea's GM Daewoo still has some time ― and far better chances ― to survive, provided the company, its largest shareholder and its main creditor cooperate to that end.

The problem is, its majority shareholder, General Motors, seems to want to accept the relief of possible bailout funds without showing corresponding willingness to help its own. That was the impression that Nick Reilly, president of GM Asia Pacific, gave at a news conference here Friday.

We think the Korea Development Bank (KDB), the largest creditor that also holds 27 percent of GM Daewoo's equity stake against GM's 51 percent, was right to demand that GM inject more money into its ailing Korean unit and/or sell off part of its equity stakes in exchange for KDB's additional bailout loans. Anything less would be a heads-we-win, tails-you-lose partnership.

GM has even hinted at giving up GM Daewoo, brandishing its global dealership for the Korean unit as a major weapon. The Korean company, its main creditor and the Korean government, on the other hand, believe the troubled U.S. auto giant can hardly do without its Asian base for small car manufacturing, as shown by Reilly's acknowledgement of GM Daewoo's proven capacity in designing and engineering.

GM's first reply to the KDB proposal will come by this weekend, but any lasting decision on GM Daewoo will not come until the end of this month, when the Obama administration's auto task force determines the fate of its parent company. So if KDB comes up with a financial rescue before then, it would be like the fabled mother who makes a concession to save the life of her baby in front of King Solomon.

In any case, the Korean side's decision should be based not on political but on purely economic reasoning. Rival political parties should never repeat their mistakes of emboldening the U.S. side and misguiding its Korean counterpart by competing to make irresponsible promises on its rescue, although they are hardly likely to do so now that the polls are long gone.

The 140,000 jobs linked to GM Daewoo and its suppliers and the impact on the regional economy should never be neglected. But what the government should take into account in its final decision are the long-term prospects of the global and domestic auto industry.