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East: Daewoo Operations Face Uncertain Future

  • Breffni O'Rourke

The bankrupt South Korean carmaker Daewoo Motor says it will soon cut jobs at some of its overseas operations, which include plants in Eastern Europe and Central Asia. The U.S. car maker General Motors is negotiating to take over Daewoo, but the future for plants located in Europe and Uzbekistan is uncertain. Daewoo's factory in Romania may be an exception.

Prague, 22 March 2001 (RFE/RL) -- Daewoo Motor began its meteoric rise to prominence in the world's auto markets only 10 years ago. As part of a huge international expansion program, it established car manufacturing or assembly plants in Poland, Romania, Ukraine and Uzbekistan. It also took over the established Czech truck manufacturer Avia. But the program proved overambitious and -- finally swamped by debt -- Daewoo went bankrupt four months ago (November 2000).

Many workers have already been laid off at the company's South Korean plants. This week Daewoo said it plans to cut its overseas workforce, which totals 46,000, by 14 percent in the next few months.

The cuts will fall heavily on the Polish plant in Warsaw, one of the biggest in the Daewoo empire.

A potential lifeline for Daewoo is being offered by the U.S. automaker General Motors, or GM, which is negotiating to take over the company. But news reports say GM wants only the Korean plants in order to give it an entry into the Korean and Asian markets. It is reported not to be interested in the East European plants -- most, if not all, of which are loss-making.

In a talk with RFE/RL, Henry Wong, a spokesman for GM in Detroit, would not comment on news reports. He said:

"It would be inappropriate for us to comment about the details of what is included and what is not included in the discussions. At this point we have entered into [the financial survey process called] 'due diligence.' We are still interested in doing a deal with Daewoo."

At Daewoo headquarters, one of the company's executive directors, Han Young-Chua, said GM has not yet made clear its intentions even to Daewoo's Korean management. Han said:

"We do not know exactly what kind of scope they [GM] are thinking about right now. So unfortunately, I don't know -- frankly speaking -- whether they are interested in buying any of our overseas operations, either sales or manufacturing subsidiaries, or even if they are going to buy the older factories in Korea, or only one or two factories in Korea."

Han said Daewoo's hopes to sell all its facilities to GM in one package. He says that would make "everybody's life much easier." He added:

"But in the case that GM would, for instance, exclude some of our overseas operations, then our intention would be to try to sell those excluded operations to a third party. But that can happen only when we know exactly what GM would like to buy."

Han said that no contacts with other potential buyers are under way while the negotiations continue with GM. The talks with the U.S. company have been going on for months, and it's obvious GM is proceeding in its bid with extreme care because Daewoo's business empire is a complicated one.

Another U.S. auto giant, Ford, withdrew speedily from a $7 billion bid for Daewoo last September after it discovered that the South Koreans might have made previously undisclosed investment commitments to East European governments.

Ford had earlier been enthusiastic about acquiring the Korean company, with a spokesman telling RFE/RL that Daewoo's strong brand presence in Central and Eastern Europe would fill a gap in Ford's product line-up. But this week Ford spokesman Paul Wood dismissed suggestions that his company might still be interested in buying any of Daewoo's European facilities not acquired by GM.

"When we did decided to cease our negotiations last summer, it was strictly that, we have stopped negotiations, we do not have interest in Daewoo in almost any way, shape, or form."

A British-based auto-industry analyst, Mark Bursa, says that in the event of a GM rejection, it won't be easy to sell off Daewoo's Romanian and Ukrainian joint ventures. These are located, respectively, at Craiova in southern Romania and Zaporizhe in southeastern Ukraine. Bursa told our correspondent:

"I think Craiova is going to be difficult to sell. I think of all the [Daewoo factories] Ukraine and Romania are probably the weakest. The Polish operations are salvageable because they have a good position there and a good market share in a country which is heading for the European Union in a few years time. So whoever buys that will have a good position."

But Bursa does not rule out separate bids for the East European factories. He foresees possible interest from another South Korean company, Hyundai, for the Warsaw plant, and from France's Peugeot for the Craiova plant.

Craiova plant manager Gabriel Parcalabu is more optimistic about the survival prospects for his factory. He says that at present there are no plans for dismissals among the plant's 3,500 employees.

Parcalabu also notes that Craiova, in which the Romanian government has a 49 percent share, is relatively independent of the Koreans. He says the plant intends to continue functioning and is now taking the initiative in securing new markets for itself.

"I can tell you that right now we export to China and to Venezuela, and we have sent people to Africa, to Algeria, and we are about to conclude also with them a contract for export. I am speaking here about cars but [in addition] we also export [car body] panels to Poland."

Parcalabu says the plant itself is not in contact with a possible future partner, GM or any other. He also notes that Craiova continues to have a good stock of supplies of Daewoo components for its production lines. In Seoul, Daewoo executive Han Young-Chua says that the South Koreans plan to keep up the flow of parts to overseas subsidiaries.