Korea: Daewoo Bankruptcy May Result in Ripple Effect, Causing Additional Insolvencies

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Daewoo failure puts severe wrinkles on economy There are fears that the bankruptcy of Daewoo Motor may result in a series of insolvencies among the car maker's 9,360 parts suppliers, mass layoffs and substantial reductions in car exports, putting additional strain on the already shaky Korean economy, analysts forecast. In addition, the collapse of the nation's second largest automaker, saddled with 18 trillion won in debts, will drastically weaken the finances of its creditors and sister affiliates linked by cross debt guarantees, they said. Daewoo creditors' ongoing efforts to sell off the troubled car maker to General Motors and its Italian partner Fiat are also certain to suffer enormous setbacks and delays, they warned.

The most immediate fallout from Daewoo's bankruptcy will fall on its 9,360 parts suppliers, including the 504 firsthand parts suppliers employing about 300,000 workers, said the analysts.

"Due to Daewoo's defaults on its commercial paper, nearly all of the 9,300-odd subcontractors will be driven to the brink of bankruptcy, giving rise to massive job losses," said an industry analyst. In 1999, Daewoo Motor paid its parts suppliers a total of 3.9 trillion won. At the time of Kia Motors' bankruptcy in 1997, an estimated 10,000 workers lost jobs.

"In particular, provincial economies of Inchon, Pusan and other host to Daewoo plants will be dealt a serious blow. Its local creditors will be obliged to set aside additional 1.2 trillion won in provisions, suffering further damages to their asset soundness," he said.

He noted that Daewoo Motor's 46 overseas affiliates, including 13 manufacturing plants, will also suffer serious setbacks in their daily operations in the wake of the parent company's bankruptcy. The crash of Daewoo's brand image will also lead to substantial cuts in its overseas sales, estimated to reach 900,000 units last year. It produced 1.26 million cars last year from its local plants in Inchon, Kunsan, Changwon and Pusan.

The creditors' decision to declare Daewoo bankrupt and put it under court receivership came in the wake of failures by the company management and labor to reach an agreement on self-rescue measures.

The creditors extended the deadline for the company's final bankruptcy by one day until yesterday morning. But they failed to reach agreement after several rounds of marathon talks, with labor adamantly sticking to its demands that overdue wages be paid off prior to any reform moves. Creditors have said that provisions of additional loans to Daewoo would be closely linked to the company's layoffs and other faithful self-rescue efforts. In a statement, unionists said that they are determined to closely link the layoff issue to settlements of all overdue wages, estimated to exceed 100 billion won ($88.5 million).

According to experts, the court is expected to rule on its possible receivership over Daewoo Motor within a month. Then, the court-appointed managers are expected to implement sweeping cost-cutting and layoffs, in a bid to facilitate the automaker's sale to the GM-Fiat consortium. In the event of still labor resistance to layoffs and GM's possible pullout from the takeover talks, however, Daewoo Motor may be put on path to outright liquidation.

Daewoo Motor spokesman Kim Jong-do, expressing regrets at the formal bankruptcy procedures, said that the management will determine the future direction of the company through full consultations with creditors. Company union leader also told reporters that the unionists will continue to fight for their job security, while attempting to normalize plant operations.

By Yoo Cheong-mo Staff reporter

2000.11.09

http://www.koreaherald.co.kr/SITE/data/html_dir/2000/11/09/200011090006.asp

-- Carl Jenkins (somewherepress@aol.com), November 08, 2000

Answers

11/08 23:25 Daewoo Motor Suspends Main Plant; Suppliers Want Cash (Update2) By Sangim Han

Seoul, Nov. 9 (Bloomberg) -- Daewoo Motor Co., which yesterday became Korea's biggest bankrupt company, suspended production at its largest plant in Korea as autoparts makers demanded cash before they delivered components.

Other plants face output disruption as bankruptcy proceedings puts a freeze on Daewoo Motor assets, leaving it little cash to pay for parts, analysts said. The output snarl comes as creditors try to convince likely joint suitors General Motors Corp. and Fiat SpA that the automaker can survive.

``Once the court appoints new management for the company, (Daewoo) will be able to make those payments,'' said Doh Joong Young, who manages 400 billion won ($352 million) at Samsung Investment Trust Co. ``But until then, suppliers will be left in limbo.'' The automaker may file for receivership this weekend, the Yonhap news agency reported.

Creditors yesterday declared Daewoo Motor in default of its loans after the company failed to reach an agreement on job cuts with its union. The country's second-largest automaker is struggling to repay debts and pay workers after banks halted new loans, pending a pact with the union.

``Some auto components ran out so we couldn't run the main plant'' at Pupyong, near Seoul, said company spokesman Hwang Nam Chul. The company's other plants in Korea are operating normally, he said.

Daewoo Motor Sales Corp., the company's Korean sales unit, fell as much as 14.9 percent to 1,145 won. Ssangyong Motor Co., another Daewoo unit, fell as much as 5.7 percent to 830 won in early trading.

Union Meeting

Union officials said they are prepared to hold more talks with Daewoo Motor officials to forge an agreement on how to return to company to profit. Daewoo Motor is on course to lose as much as $2 billion this year, banks said.

``We are not closed to further discussions and we don't think it's too late,'' said Dan Byung Ho, president of the Korean Confederation of Trade Unions, which counts autoworkers among its half million members.

``We want to work with the management to restore normal operations,'' Dan said. ``But first, the company should open its books to us to reveal the true state of its finances.''

Daewoo's company union is resisting a plan that would cut a third of the factory workers, or about 3,500 jobs, and force staff to take pay cuts.

The Pupyong plant has an annual production capacity of 500,000 vehicles, although it had only been operating at half that level before the recent disruptions.

Daewoo Motor's bankruptcy may cause other defaults among its chain of 9,000 suppliers, the company warned earlier this week.

``By demanding cash, suppliers are bring about their own problems because they themselves will not be able to operate,'' said Samsung's Doh. ``Those auto parts suppliers who are weak, either financially or technologically, will be closed down.''

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial% 20News&s1=blk&tp=ad_topright_topfin&refer=topfin&T=markets_bfgcgi_cont ent99.ht&s2=blk&bt=ad_position1_topfin&middle=ad_frame2_topfin&s=AOgon HBZKRGFld29v

-- Martin Thompson (mthom1927@aol.com), November 09, 2000.


I think I will buy a Daewoo and park it next to my Yugo.

-- Uncle Fred (dogboy45@bigfoot.com), November 09, 2000.

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