Despite early trauma, Daewoo became the cornerstone of GM's drive into Asia

In late April 2002, General Motors Chairman Jack Smith flew to Seoul to sign an agreement to buy key assets of bankrupt Daewoo Motor Corp. He expected the usual pomp and circumstance common to such ceremonies. Instead, he got chaos.

Screaming Daewoo union members wearing red headbands burst into the signing-ceremony room. They fought with guards and threw chairs. Smith was shoved through a trapdoor under the stage that led to the parking garage, where he and other GM staffers made their escape.

Smith and the GM contingent drove around Seoul while aides frantically conferred on their cell phones. Finally they agreed to go to the headquarters of Korea Development Bank, one of Daewoo's selling creditors, for the formal signing.

"To Jack's credit, there was no way we were not going to go through with that signing," says Rob Leggat, GM Asia Pacific spokesman.

Asian cornerstone

Today, GM Daewoo Automotive & Technology Co. is the cornerstone of GM's drive into Asia. It provides the engineering and designs for expanding, profitable operations in China, India and elsewhere.

"When the history is written on the second 100 years of GM, this Daewoo acquisition was massive," says GM CEO Rick Wagoner. "Massive in ways that I don't think anybody fully understood at the time."

But it almost didn't happen. The protests at the signing ceremony were just the latest in a series of hurdles the acquisition faced.

The union protesters were not factory workers. After earlier near-riot protests, the factory union eventually had signaled its acceptance of the GM purchase. The protesters at the signing ceremony were sales staffers from Daewoo's Korean dealerships. They were furious about reports that GM planned to pay them sales commissions rather than salaries.

When the Daewoo Group collapsed in 1999, its convoluted debts and assets were a mess. Creditors finally sorted out the auto operations' finances sufficiently to consider a sale.

In June 2000, banks and other creditors made their first attempt to auction off Daewoo's auto business. GM thought it had the inside track. After all, Daewoo's first foray into passenger cars had come thanks to a tie-up with GM that produced the Pontiac LeMans.

Ford bids, then walks

But Ford Motor Co. submitted a nonbinding bid that totaled a robust $6.9 billion, about $2 billion above a joint bid from GM and Fiat Auto S.p.A. Then Ford began digging deeper into the troubled carmaker's books.

It didn't like what it found. Indeed, the Korean government's powerful Financial Supervisory Commission later said that Daewoo executives had exaggerated the value of the parent Daewoo Group by about $21 billion in an effort to mislead investors and regulators. In September 2000, Ford walked away. In November, after falling afoul of its financial covenants, Daewoo Motor filed for bankruptcy protection.

In 2001, GM won the next auction of Daewoo and signed a memorandum of understanding to buy the carmaker. It took another year of talks to get to the signing of a definitive agreement in April 2002. Even then, negotiators had worked well past midnight and into early Saturday morning, ahead of Smith's arrival on Sunday for the signing.

Normally, a deal like that might require another two or three months to wrap up details. This one took six months. One sticking point: GM CEO Rick Wagoner's decision to drop the Daewoo name in favor of a Chevrolet badge in most markets irked the Korean side.

"To be perfectly honest, it was probably not until August or September of 2002 that we were very confident the deal would close," recalls Nick Reilly, the first president of the newly named GM Daewoo Automotive & Technology.

GM and its partners, Suzuki Motor Corp. and Shanghai Automotive Industry Corp., paid $400 million for 67 percent of GM Daewoo. For its own investment of $251 million, GM got 42 percent of the new company, which took over selected assets of the bankrupt Korean carmaker.

Part, not all

GM took over nine sales and distribution units in western Europe and Puerto Rico, but none in the United States or England.

GM also bought two Daewoo assembly plants in Korea and one in Vietnam, but did not take other assembly plants scattered across the globe, including ones in Poland and Uzbekistan. It put another assembly plant, in Pupyong, Korea, on notice. It agreed to buy the plant's output for six years and said it would buy the plant outright if certain targets for quality, output and labor peace were met.

Under Reilly's leadership, the pre-purchase animosity soon evaporated. GM's clear reliance on Daewoo, and its export-heavy strategy, won over naysayers. Within 18 months GM put the Pupyong plant on two shifts for the first time since 1999. GM Daewoo never looked back.

You can reach James B. Treece at jtreece@crain.com.