Carmakers Distress Call

Decision on GM-Daewoo Is Touchstone of Restructuring

Given the current economic situation, nothing should be unusual with the nation's third-largest automaker asking its creditors for some ``emergency'' lending.

But the Ministry of Knowledge Economy turned down an earlier request from the GM-Daewoo Auto and Technology, a local unit of the troubled General Motors Corp., judging ― correctly ― that it was not time for the government to pour taxpayer money into salvaging a private company.

Not so easy will be the decision of the Korea Development Bank, a government-run lender and GM-Daewoo's main creditor, on whether or not it will positively respond to the carmaker's plea for additional loans of at least one trillion won ($660 million).

To be considered is not only an automaker's survival but also the nation's auto industry amid the global shakeup hitting this particularly industrial sector; the government's much-delayed industrial restructuring, particularly involving large manufacturers; and the nation's trade relationship with the United States, which thinks ― incorrectly ― the balance in auto trade is unfairly in favor of Korea.

The KDB's principle to base its final decision on GM-Daewoo's self-rescue efforts and Washington's handling of its parent group, including even the possibility of leaving GM in the hands of bankruptcy court, appears reasonable for now, in this regard. It is true that most governments are going to great lengths to bolster their respective automakers, raising serious concerns of resurgent trade protectionism, not just because of the industry's status as the symbol of manufacturing but because of its vital role in saving and creating jobs, including those at parts suppliers.

Considering industry analysts' conclusion that continuous bailouts in the auto sector could end up as proverbial throwing water on thirsty soil bringing down other industries with sufficient growth potential, the most important thing will be discerning jade from stone ― firms which have long-term viability and those that don't.

So it's only natural GM-Daewoo's executives and employees should agree on wage cuts, more flexible work shifts and other cost-cutting efforts. Fortunately for the automaker, the company's main strength is its smaller, fuel-efficient models, a factor that also can help to assure the Korean unit's survival in GM's global reorganization.

The keyword is an automaker's future strategy backed up by sufficient technology and R&D, as well as labor-management harmony. Another factor should be the automakers' contribution to the national economy and consumer welfare. The government's reported plan to provide subsidies to buyers of new cars is not just premature but gives an unfair advantage to automakers, in this regard.

For example, Hyundai Motor, the nation's largest and the world's sixth-largest automaker with affiliate Kia Motors, has yet to introduce a discount system for buyers who make lump-sum payments, as it did during the Asian financial crisis of 11 years ago, despite hefty cash reserves. Hyundai, which has made a sensation by introducing marketing tactics to ``buy back'' vehicles from clients losing jobs after car purchases, has made only gestures of discounts on the home market, with no substantive changes.

Last but not least is auto trade between Korea and the United States. When Washington contrasted auto import figures of 775,000 vs. 6,500 in 2007, it didn't include 125,000 cars GM-Daewoo produced here. The final decision on whether, how much and when the financial aid should be given will likely belong not with the government-run bank but the government itself, by taking a number of these complex factors into consideration.

Policymakers will have to be prudent in judgment but swift in action. Dragging their feet in vital industrial restructuring like this is better than only one thing ― taking no action at all.