Breaking Up Is Hard to Do

General Motors Corp. won't complete the transition process to acquire certain assets of bankrupt Daewoo Motor Co. Ltd. by late July as planned, a top executive tells Ward's.

It's another delay for an excruciatingly long bargaining process. After two years of negotiations GM announced April 30 it had reached a deal to buy parts of Daewoo and form a new company with Daewoo creditors and GM alliance partners. At the time, GM expected the deal to formally close by late July.

“It's looking likely to be the end of August unfortunately,” Nick Reilly, president and CEO-GM Daewoo Auto and Technology Co. (GMDAT) says in an interview. “There also is nothing really in our control. They have to split the old company various different ways. We are obviously forming a new company. But they've got the bus company, the truck company and other parts of the company we're not involved with. So all of the assets have to get split. The whole thing has to get recorded and approved by the creditors.

“So it's taking a long time to get through the sheer legwork of all that.”

Reilly says the delay isn't surprising. “We actually had planned for that. We planned around the August-September time given that there have been delays all along, because of the complexity of (the deal). That's what we planned for, although we set a target for something tighter than that to try to get it done as soon as possible.”

Part of the paperwork includes finalizing the roles of the undisclosed GM alliance partners, which own a 27% stake in GMDAT. “I would hope sometime in July we would be able to say who those are,” Reilly tells Ward's.

Outside of the obvious partners — Fuji Heavy Industries Ltd. (Subaru), Suzuki Motor Corp., Isuzu Motors Ltd. and Fiat Auto SpA — there are reports that GM's China joint venture partner Shanghai Automotive Industry Corp. wants to buy into GMDAT.

“I'd rather not speculate on that at this time,” Reilly says. “There's a possibility for all GM partners. We have a lot of GM alliance partners.”

GM has a 42% stake of GMDAT. There is no put option, and GM has first refusal rights if Daewoo creditors decide to sell any portion of their 31% stake.

Once the details are ironed out, Reilly says GMDAT is considering production in China and would like to have an SUV in its lineup. “Obviously, China has a duty issue at the moment whereby it's pretty difficult to get fully built units imported,” Reilly tells Ward's. “So one has to look at assembly operations, and we're studying that right now. China is a market that is very suitable for the Daewoo product.”

Reilly also thinks an SUV in GMDAT's lineup would be suitable. “That's obviously one of the places where we're not represented at the moment, and it's an important market in Korea,” says Reilly. “So it's an area we'd like to get into.”

While GMDAT's lineup needs some additions, the current products are relatively new, Reilly points out. And that will be helpful during the next 12 to 18 months, which will be especially challenging as GMDAT gets into new markets and digs itself out of the hole created by Daewoo's struggles. “That's the most important thing. If they had completely fallen behind on their product programs, then it would be much more difficult,” Reilly says.

It's already challenging, considering GMDAT is launching during uncertain economic times and has no guarantees of additional funding beyond the $2 billion in backing lined up by Daewoo creditors. “The plan is for it to be self-funded. We have a significant amount of credit lines available,” says Reilly. “It depends how quickly we can turn the company into a profit position” and how much cash is needed for new product programs.

GMDAT's immediate goals are to re-establish itself in Korea, have a fast start in Europe and grow gradually in other markets, reveals Reilly. “You're talking about a company that's producing 420,000 to 430,000 (vehicles) at the moment, but has produced 800,000. With possible CKD (complete-knocked-down kit) opportunities, we hope to be back up to those numbers in the not-too-distant future.”

But the drive to doubling sales won't go through India, Poland or the U.S. — markets that weren't included in GMDAT.

It eventually could return to those markets. Reilly says he hopes GMDAT products will be sold in the U.S. within five to 10 years. Pending GMDAT's final approval, Reilly says the new company will honor Daewoo warranties in the U.S. if requested. “As for anything else they may have put out as marketing programs in the past, that will be responsibility of the existing company.”