Korea Auto Sales Rise as Confidence in Selling Daewoo Falls

South Korea's automotive industry this year received good news and bad: new vehicle sales at home surged - up 33% in the first five months, alone - but the once proud domestic industry has lost its independence. Which means Korea's market no longer is closed to foreign competition.

Analysts argue that's good. French automaker Renault SA now owns fledgling Samsung Motors Inc., which didn't have a prayer of revival otherwise, hoping to produce 150,000 units annually and turn a profit by 2004. Germany's DaimlerChrysler AG holds a 10% stake in market leader Hyundai Motor Co. Ltd. (which in turn owns Kia Motors Corp.), giving it greater credibility and value. The two are planning a commercial vehicle venture and later will build small world cars together.

Where everyone pretty much agrees is that the hunt for a white knight to save insolvent Daewoo Motor Co. Ltd. took an unexpected turn when Ford Motor Co. dropped out of its $6.9 billion preliminary bid on Sept. 15, after eight weeks of due diligence. Ford said little in the process, yet the collapsed deal spoke volumes - that perhaps Daewoo's problems were more than any suitor was willing to bargain for.

Daewoo Motor's chief creditor, the Korean Development Bank, scrapped its Oct. 20 sale deadline for the auto subsidiary and began desperately trolling for interested parties, of which only partners General Motors Corp. and Fiat SpA remained. No one is sure of Daewoo Motors' true debt, reported at between $18 billion and $20 billion, but its conglomerate parent collapsed under a debt of $80 billion. And more trouble brews as the government investigates charges that Daewoo Group founder Kim Woo-Choong and other top executives concealed even more liabilities.

Selling Daewoo Motor not only would have helped creditors recover their enormous losses, but also soothe a nervous stock market and reinforce the government's determination - plus promises to the International Monetary Fund - that economic reform in Korea can work. Instead, the fallout from Ford's pullout rocked the Korean stock market, which plunged 12% on the news.

The one sure thing is that Korea's auto market remains key to every global automaker's ambition to gain market share in the Asia/Pacific region. Domestic demand for new passenger cars alone, including imports, by 2005 is expected to reach 857,400 units. But the potential is far greater. Koreans produced more than 2.5 million total vehicles in 1996 before the region's financial meltdown, selling 1.5 million in the domestic market. No major industry player can afford to pass that up, speed bumps and all.