(News Focus) Gov't prepares to reduce fallout of GM bankruptcy on local industry

By Lee Joon-seung
SEOUL, May 28 (Yonhap) -- South Korea's government is reviewing various options
to reduce fallout from the pending bankruptcy of General Motors Corp. (GM) on the
local automotive industry, official sources said Thursday.
The move comes as no breakthrough has been made between GM and its creditors on
how best to keep the world's No. 2 carmaker afloat in the face of plummeting
sales and mounting debt. U.S. analysts said there is a strong possibility that GM
may file for Chapter 11 in the next few days, with Washington moving to
effectively buy up to a 70 percent stake in the company and create a streamlined
"new GM" that may cut back on production. Such a move is expected to affect GM
Daewoo Auto & Technology Co., GM's South Korean subsidiary, since overall
restructuring by the auto giant could hurt the local company position.
GM holds a 72 percent stake in the South Korean carmaker, with the remainder
being controlled by state-run Korea Development Bank (KDB).
The Ministry of Knowledge Economy has stressed that any measures taken by Seoul
will center on maintaining an appropriate level of output and sales that is
crucial not only for the carmaker, but for the more than 800 parts and components
companies that deal with GM Daewoo. A special task force had been established to
review all contingency plans that may include KDB providing fresh funds.
"Several options are being examined if GM goes bankrupt that may encompass a
broad range of support to minimize repercussions on the overall economy," said a
government official, who declined to be identified.
He, however, said no details can be announced at present since there is a need to
examine GM's overall global plan and how it will affect its South Korean
affiliate.
He stressed that despite the current worldwide economic slump, GM Daewoo is doing
relatively well because it focuses on making small-sized cars. The key,
therefore, will be to maintain overseas sales networks that will not be affected
by any downsizing by GM, he said.
The South Korean company exported 86.8 percent of all cars made last year as GM
Chevrolet vehicles. The carmaker produced nearly 882,000 vehicles in 2008, with
over 765,000 being shipped abroad and only 116,000 units sold in the country.
The ministry in charge of the country's industrial policy and trade promotion
added that it will check all feasible support measures for parts suppliers that
could be affected by any cuts in production.
Seoul has been careful about announcing support because such actions could
trigger demands by other industries that are struggling to cope with the economic
slump triggered by last year's U.S. financial crisis.
Most parts suppliers are small- and medium-sized enterprises (SMEs) that do not
have the resources to stay in business if they cannot sell products.
Last month, local banks and governments where GM Daewoo plants operate agreed to
provide 240 billion won (US$191 million) worth of liquidity to car parts
companies, although this may be inadequate if GM Daewoo's parent company goes
under.
The agreement was reached partly because even if GM is forced to file for court
protection and close down more than a quarter of its 47 plants worldwide, GM
Daewoo may be incorporated into a so-called new GM, along with other viable GM
affiliates such as Chevrolet, Buick and Cadillac.
The ministry said that speculation that KDB may opt to become the largest
shareholder and take over management of GM Daewoo would be contingent on
preconditions.
KDB already said it would be willing to provide 1 trillion won in funds if GM
agreed to turn over licensing rights to technologies developed by its South
Korean affiliate and agreed to relocate an engine manufacturing plant in
Australia to South Korea. It further requested to ensure continued overseas sales
of GM Daewoo cars.
Related to Seoul's plans to offer support, Kim Pil-soo, a professor of automotive
engineering at Daelim College, said that policymakers must bear in mind that GM
Daewoo is about 10 times larger than Ssangyong Motor Co., which applied for court
receivership earlier in the year after its parent company Shanghai Automotive
Industry Corp. in China was reluctant to pour large sums of funds to cover
mounting losses.
The expert emphasized that if the KDB decides to take over the carmaker, it must
secure technology licensing rights and overseas sales networks.
"If these conditions are not met, taking over the company will have little
significance, since it will be hard to sell cars," Kim said.
Market watchers, meanwhile, said GM's collapse could lead to a weakening of
market control by U.S. automakers, which could translate into greater
opportunities for their South Korean counterparts.
Lee Myung-hoon, an analyst for Korea Investment and Securities Co., said the
local stock market will probably not be overly shocked by GM's bankruptcy.
He said if local carmakers like Hyundai Motor Co. and its affiliate, Kia Motors
Corp., take advantage of such developments, they may be able to increase their
market share in the United States.
Hyundai and Kia said last month that they have surpassed Nissan to become the
sixth-largest car sellers in the U.S.
Their combined sales accounted for 7.4 percent of the market share, with experts
speculating that the two may be able to grab a milestone 10 percent market share
if conditions are on their side.
Others, however, said that the bankruptcy may pour cold water on U.S. consumer
sentiment that may have started to rebound.
If such developments take place, it could result in a smaller market overall that
will hurt South Korean carmakers as well, experts said.
yonngong@yna.co.kr
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