When the dust finally settles, General Motors is likely to end up in control of Korea's Daewoo Motor Co.
The sudden near-collapse of Daewoo Group has altered severely the backdrop for talks between GM and Daewoo. For the first time, Daewoo is willing to give up management control of Daewoo Motor - and for a lower price than it sought earlier for a minority share.
Earlier, Daewoo Group Chairman Kim Woo-Choong tried to convince GM it should invest $7.5 billion in his car company in exchange for a minority stake. Now he has indicated that he would give up management control for $3.5 billion.
For its money, GM would take over one of the two remaining Korean carmakers, thus gaining a production base in the second-largest developed car market in Asia.
GM also would gain access to Daewoo Motor's string of plants in the developing world. Some, such as a troubled joint venture with AutoZaz in Ukraine, need to be turned around. Others, however, are in better shape, most notably Daewoo Motor's venture in Poland.
Talks between Daewoo and GM have dragged on inconclusively for nearly two years, but the Korean chaebol is running out of time.
Reeling under debts of about 68 trillion won, or $57 billion at current exchange rates, Daewoo Group was pushed to the brink of insolvency last month.
The Korean government stepped in to lead a bailout plan and now is pressing Daewoo and its creditors to reach an accord quickly. The government fears that either Daewoo's bankruptcy or lingering uncertainties about its future could jeopardize Korea's economic recovery.
Daewoo and its creditors are supposed to release a restructuring plan today, Aug. 16, that will lead to the sale of key Daewoo assets by this fall.
Korean bailouts have a history of delays, however. The government had to try three times to auction off bankrupt Kia Motors Ltd. last year (Hyundai eventually bought Kia), and similar delays have plagued attempts to sell off state-owned Seoul Bank and Korea First Bank. Ironically, Korea First is Daewoo Group's biggest creditor.
THE NEW PLAN
Under the proposed plan, Daewoo Group will have to sell its profitable securities firm, its money-losing shipyards and virtually everything else that isn't a part of its auto operations.
'Eventually, Daewoo Group will be left with just the auto business,' said Lee Hun-Jai, chairman of the government's Financial Supervisory Commission which is coordinating the Daewoo bailout and breakup.
Daewoo Group then will consist of Daewoo Motor, Daewoo Motor Sales Co., the trading operations of Daewoo Corp., the auto finance business of Daewoo Capital Co., the auto parts business of Daewoo Telecom Ltd. and the heavy machinery business of Daewoo Heavy Industries Co.
By some accounts, and depending on who does the counting, selling all the nonauto assets will raise enough funds to pay off only slightly more than half of Daewoo Group's debts.
Moreover, Daewoo Motor itself has problems, resulting from its headlong expansion into developing markets in the past decade and a plunge in car sales in Korea during last year's economic slump.
'Daewoo Motor is financially poor and needs a fresh capital injection. It will have to sell a stake of assets itself,' said Richard Pyo, an auto analyst at the Seoul branch of Credit Suisse First Boston.
That is when GM reentered the picture. GM and Daewoo signed a memorandum of understanding on Aug. 6, their second in two years, to 'intensify discussions' toward a 'strategic alliance.'
Daewoo Motor originally was founded as a joint venture between Daewoo Group and GM, but GM sold its stake in 1992 after years of bickering between the two sides.
Bloomberg News Service and Automotive News correspondent Oles Gadacz contributed to this report