General Motors Corp., looking to expand its footprint in Asia, can't be faulted for a sense of deja vu as it considers bidding on Korea's ailing Daewoo Motor Co. Ltd. for a third and likely final time. The question is whether there will be any assets worth resuscitating should the automaker decide to try again. In the months since it last studied Daewoo's health, the patient has slipped from serious to critical, declaring bankruptcy last month.
GM Chief Executive G. Richard Wagoner agrees. "We need to make a call fairly soon as to whether or not we're seriously going to go at it," he says in an exclusive interview with WAW before the company began preparing to go into receivership after defaulting on repaying $78 million in commercial loans.
Indeed, while the purchaser of Daewoo Motor will acquire only assets and not liability, some analysts predict the new buyer will have to invest around $106 billion annually just to keep the automaker operating at its current unsatisfactory level. Daewoo has 12 overseas operations and has the capacity to make 2 million vehicles annually at home and abroad.
Throw in additional investment to revive research and development, upgrade processes and initiate new products, and the amount substantially increases. Such a considerable drain creates a sticky situation when it comes to determining shareholder value.
"We have to be able to explain the transaction reasonably to our investors," Mr. Wagoner says, should GM decide to proffer a deal. "I hope we can, but I think it's not going to be easy." Yet, he is not deterred, noting that Daewoo for GM is a logical fit.
"Some of their product history is based on ours," Mr. Wagoner says, adding that Korea is a major market and a good geographic fit. "Product wise, I think it could have some products that could integrate well into a global portfolio." Plus Daewoo's export base, he says, could be of value. Ultimately, Mr. Wagoner concedes, it's the opportunity to pry open a notoriously closed market.
But getting to "go" has not been easy. Fourteen months ago, GM, which shared a 15-year alliance with Daewoo that ended in 1992, offered a reported $5.6 billion for the debt-ridden automaker. Creditor banks, hoping for more, turned GM down and instead invited in additional suitors. GM in the second round - this time with alliance partner Fiat SpA - bid a reported $5 billion.
In a surprise turn, Ford Motor Co., which is said to have bid $6.9 billion, was chosen as the single final bidder and given eight weeks to complete due diligence. But Ford in late September offered little explanation as it abandoned the deal at the eleventh hour, leaving Daewoo to strangle in its mounting debts, totaling $16 billion in June.
Mr. Wagoner says he doesn't know why Ford walked away, but it doesn't bother him. "We're looking at it on the basis of what is the value of the business and can we get something that works on both sides," he says. "It's not an easy thing to sort out." Nor will it be the cash bonanza creditors were hoping for. Most analysts agree that whatever the GM/Fiat alliance pays, it will be far less than GM's original offer.
Nevertheless, GM as of last month appeared to be Daewoo Motor's last hope for a cure. Struggling to stay alive, Daewoo management in late October announced a drastic "self-rescue" plan, under which it would cut 3,500 jobs from its 19,000 work force by next year, slash operating costs and close or sell unprofitable overseas operations.
The company also planned to cut its senior executive staff at home and abroad by 30%, closing 17 bureaus. Meanwhile, it failed to pay employee salaries for a second month due to a shortage of funds, telling creditors it would need a fresh transfusion of some $731 million through the first half of 2001. The lobbying body for South Korea's vehicle makers urged creditors to provide prompt financial aid, noting Daewoo's operations were on the verge of collapse.
"They're recognizing that they have to run the business the way they think it makes sense and not be betting the ranch on somebody coming in and buying the store," Mr. Wagoner said at the time.
Angry union workers, however, who recently exacted a five-year no-layoff promise from the company, rejected the rescue plan, prompting Daewoo Motor's main creditor, the Korea Development Bank, to also rebuff it, claiming it was meaningless without union agreement. Industry observers now question whether Daewoo's court receivership will further complicate its chances for rescue by GM. Mr. Wagoner isn't saying, but there's little doubt that the automaker is monitoring unfolding events very carefully.
* Total annual output capacity of 2.15 million units, including 1,266,000 units at home and 887,600 overseas. Daewoo said in October its plants were only running at 60% capacity.
* January-October sales of 753,527 units, a 4.5% decrease from same period last year. Total 1999 sales of 945,572 vehicles, including 339,760 in South Korea.
* Has five domestic plants, including one Ssangyong Motor plant, and 26,950 plant employees.
* Daewoo says domestic employees have not been paid since August because the company is running losses of 100 billion won ($88 million) a month.
* Overseas has 12 plants in 11 countries with about 53,000 employees.
* Daewoo's two Polish plants have a combined annual output capacity of 304,000, including 272,000 cars and 32,000 trucks
* Uzbekistan is the second largest overseas center based on annual output capacity, including 120,000 cars and 40,000 trucks
* Asian operations include a bus plant in China.
* Daewoo Motor and 11 other core Daewoo Group firms were placed under debt workout in August 1999.
* Daewoo had liabilities of 17.91 trillion won ($16.07 billion) versus assets of 11.83 trillion won ($10.4 billion) as of January, according to the Financial Supervisory Commission.
