Daewoo suppliers cheered by GM’s deep pockets

Promises, promises
Daewoo Motor’s 8 largest suppliers and the face value of their promissory notes*

1. Daewoo Heavy Industries & Machinery Ltd.; machine tools and factory-automation equipment: $204.5 million

2. Korea Delphi Automotive Systems Corp.; brakes, electrical systems, catalytic converters: $170.5 million

3. Daewoo Telecom Ltd.; automatic transmissions, shock absorbers, airbags, engine components: $87.9 million

4. Hankuk Sekurit Ltd.; safety glass: $19.6 million

5. Daewoo Electronics Co.; car audio and video systems: $14.8 million

6. Koryo Co. Ltd.; car seats: $12 million

7. Shinsung Packard Co.; wiring harnesses: $6.8 million

8. Dongwon Metal Industry Co.; mufflers, door frames, side-impact door beams: $6 million

*Debt converted at $1=1,320 won

Source: Company data

SEOUL — Suppliers to Daewoo Motor Co., many dragged to the edge of bankruptcy by the problems of their big customer, say they can see recovery now that General Motors may be part of it.

After signing a nonbinding agreement to acquire control of bankrupt Daewoo Motor last month, GM last week began its final due diligence, a process that could take two months.

Under terms of the preliminary deal, GM would pay $400 million to take over Daewoo plants in Kunsan and Changwon, 22 overseas subsidiaries and factories in Egypt and Vietnam. The deal excludes plants in 12 countries, including Poland, the Czech Republic and China.

The deal, expected to be completed in early 2002, has hot-wired Koreans’ confidence in Daewoo. Daewoo sales for the first 10 days of October shot up 20 percent from the same period a month earlier in a market that was off 35 percent.

That kick may signal a bottom to Daewoo’s long slide, analysts say. Through September, Daewoo exports are off 40 percent from a year earlier to 366,459 while domestic sales are down 36 percent, to 125,287.

“They’ve passed the worst period,” said Suh Sung Moon, an analyst with ING Barings in Seoul.

But many suppliers remain in a deep hole. One major reason: Daewoo’s failure to pay $650 million in promissory notes issued for parts delivered to the automaker before it was declared bankrupt.

Since then Daewoo’s creditors have paid cash to suppliers.

To protest Daewoo’s inaction, suppliers cut off parts shipments for one day on Sept. 18. The cutoff forced Daewoo’s domestic plants in Pupyong and Kunsan to shut down for the day.

The new company to be formed under the GM-Daewoo pact would assume responsibility for up to $510 million in operating liabilities, which supposedly includes supplier debt. But an official for the Korea Development Bank, Daewoo’s lead creditor, said last week that was unlikely.

The money is needed. Of Daewoo’s approximately 230 primary suppliers, around 20 have been forced into bankruptcy this year.

Korea Delphi Automotive Systems Corp., Daewoo’s biggest supplier, is projecting a 30 percent drop in revenue this year, to about $440 million, according to a Korea Delphi official who asked to remain anonymous.

“Operating funds are low,” the official said. “We aren’t putting any money into new investment. It’s hard enough getting by day to day.”

Longer term, observers say, Daewoo’s supplier network likely will face a round of painful consolidation once GM completes its takeover of Daewoo assets.

Said Mark Barclay, an analyst at Samsung Securities in Seoul: “GM will drive more efficiencies, cut costs and bring down prices. It’s going to be pretty intense.”

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