Uncertainty over GM Daewoo grows as cash dwindles

SEOUL, Feb. 16 (Yonhap) -- Uncertainty surrounding the fate of GM Daewoo Auto &
Technology Co. has increased substantially as the South Korean arm of troubled
U.S. automaker General Motors Corp. is fast bleeding cash amid a steep decline in
sales and protracted plant stoppages, auto analysts said Monday.

GM Daewoo was once envied as one of the few profitable overseas subsidiaries
under the U.S. auto giant, but mounting woes at GM have finally caught up to
South Korea's third-largest carmaker.
Already, GM Daewoo has used nearly all of its US$2 billion credit line offered by
the state-run Korea Development Bank as part of a deal in 2002, when GM purchased
a majority stake in bankrupt Daewoo Motor, according to some local news reports
which cited sources in the banking industry.
Adding to the uncertainty are reports that the company is widely expected to sink
into the red for the fiscal year of 2008.
The Wall Street Journal, meanwhile, reported on Monday that GM will call for the
U.S. government to provide more aid to fund its operations or offer financial
support as part of a bankruptcy filing.
"Fate of GM Daewoo questionable as GM considers filing for bankruptcy," warned a
headline in the Korea Economic Daily, a local business newspaper.
"Uncertainty surrounding GM Daewoo increased in the short term," said Kang
Sang-min, a Seoul-based analyst at Tong Yang Securities Inc.
"But, should GM declare bankruptcy, I don't expect that GM Daewoo will be put up
for sale because the company is one of the Detroit giant's few useful assets,"
Kang said.
The Wall Street Journal report came three days after the South Korean government
rejected an appeal by GM Daewoo Chief Executive Officer Miachel Grimaldi for
liquidity support.
Officials at the Ministry of Knowledge Economy, which oversees the automotive
industry, said the government could not provide support to GM Daewoo before GM
clarifies its stance on the South Korean subsidiary.
"GM needs to first make clear how it will handle GM Daewoo in the process of its
groupwide restructuring plan," said a ministry official on condition of
anonymity.
GM Daewoo was created in 2002 when GM and its partners took a majority stake in
the automobile unit of the bankrupt Daewoo Group, which collapsed in 1998.
After years of painful restructuring, GM Daewoo, which sold more than 80 percent
of its vehicles overseas under the GM brand, posted a net profit of 542.5 billion
won ($383 million) on sales of 12.5 trillion won in 2007.
But the company's fortunes fell last year as recession clouds gathered over its
U.S. parent.
Auto sales at GM Daewoo fell eight percent in 2008 to 881,959 units. Last month,
sales plunged 50.5 percent to 45,842 vehicles.
Domestic sales fell 20.4 percent to 6,914 units and exports plummeted 53.6
percent to 38,928 units, the company said earlier.
Hit by the steep drop in sales, GM Daewoo has halted production at its plants for
the third time since last December.
GM Daewoo is idling its No. 2 plant, which produces the Winstorm sport-utility
vehicle and Tosca sedan, in the city of Bupyeong, near Seoul, for the majority of
working days this month. Its No. 1 plant in Bupyeong, where Gentra compact models
are made, will be closed for 12 days this month.
Another plant that produces the Chevrolet Cruze in Gusan, 274 kilometers
southwest of Seoul, will be operational for only 10 days this month, according to
the company's union.
One analyst warned that in a worst-case scenario, GM Daewoo may be poised to
follow in the footsteps of its smaller rival Ssangyong Motor Co., which entered
court receivership this month.
Not many analysts have voiced such a pessimistic view.
"Still, GM Daewoo is considered the only bright spot for GM," said Dongbu
Securities analyst Yoon Tae-shik in a research note, citing the South Korean
unit's line-up relied on small and mid-sized cars.
"As GM's restructuring plan is likely to put more emphasis on small- and
mid-sized cars, it will decidedly help GM Daewoo expand its role," Yoon said.
GM Daewoo employs about 17,000 workers with more than 300 prime vendors, which in
turn employ tens of thousands more workers, according to industry data.
(END)