GM Daewoo Turns Into Political Football
By Kim Hyun-cheol
Staff Reporter
GM Daewoo Auto & Technology, the Korean unit of GM Corp., is receiving strong support for its survival plan from an unexpected quarter ― Korea's ruling and opposition parties.
Ahead of Wednesday's by-election in Incheon, Gyronggi Province, the site of its main factory, the ruling Grand National Party (GNP) was wooing voters with the promise to keep the GM factory going whether or not its U.S. parent company goes under. The main opposition Democratic Party is singing a similar tune with less intensity, obviously because its candidate is more likely to win.
``This has nothing to do with us,'' a senior GM Daewoo official said, but it's difficult to dismiss the tenor of hope that this political brouhaha could help with its call for one trillion won in emergency aid.
In a related development, Incheon City and Gyeonggi Province last week agreed to work with the state-run Industrial Bank of Korea, National Agricultural Cooperative Federation and Shinhan Bank to establish a 20-billion-won fund aimed at helping companies, mainly subcontractors of GM Daewoo and Ssangyong Motors.
Beleaguered GM Daewoo is reaching out for additional short-term aid from its main creditor, the Korea Development Bank (KDB), while the state-run bank remains lukewarm in offering a helping hand.
KDB said Thursday that it will provide liquidity to the money-strapped Korean unit of U.S. maker General Motors only if its parent company reflects a package to revitalize GM Daewoo in its long-term development plans.
The announcement came after KDB head Min Euoo-sung had a meeting with Nick Reilly, GM's Asia Pacific president, and GM Daewoo CEO Michael Grimaldi. KDB currently owns a 28% stake in the carmaker.
Earlier in February, the No.3 automaker here made the same cash-injection request with the bank and the Ministry of Knowledge Economy, which turned it down saying the government is not supposed to help any individual firm in particular.
The auto firm is suffering from a serious financial crunch. It exhausted its credit line of $1.3 billion in February, and also set the loan limit in its foundation here in October 2002. An additional loan of $750 million, borrowed from the KDB in 2002, will mature in October this year.
``Double jeopardy'' hit the maker severely last year: In addition to a record loss, the needy firm worsened the situation when its hedging investments overseas turned sour.
GM Daewoo reported an 875.7 billion won ($652 million) net loss for 2008, down from a 540.5 billion profit the previous year. Exporting 80 percent of its production under GM-owned global brands, the maker saw its sales tumble throughout last year due to tightened consumer spending around the world.
Even worse, it swung to a huge net loss in failed massive foreign exchange bets to hedge its overseas sales on a weaker won and declining exports. The company posted 2.3 trillion won losses from derivatives trading ― a surge from around 200 billion won in 2007.
Perspectives are even more uncertain from the U.S. side, as the Barack Obama administration has purportedly asked GM to lay the groundwork for a possible bankruptcy filing by June 1.
The Korean unit is obviously likely to go through an extremely frugal 2009, as GM said production at its Korean unit will be lowered further than initially planned.
There's going to be ``20 percent to 25 percent off from the budget,'' Reilly was quoted as saying in an interview at this week's Shanghai International Motor Show.
GM Daewoo said earlier this month it will cut pay for its workers and sell two repair centers here as part of cost-cutting plan.