Prague, 3 February 1998 (RFE/RL) -- Negotiations between Detroit-based automaker General Motors Corporation (GM) and South Korea's Daewoo Group could have a strong impact on employment and productivity in eastern and central Europe.
Yesterday, Daewoo and General Motors signed an agreement outlining talks on a possible strategic alliance. The talks could be particularly important for Poland, Romania, Ukraine and Uzbekistan because the heavily indebted Daewoo Motor Company has bought and rebuilt formerly state-owned motor vehicle plants in each of those countries. Daewoo also has been buying shipyards and other infrastructure for its distribution network across eastern and central Europe.
Some market experts say debts resulting from Daewoo's aggressive expansion policies, combined with the economic crisis in southeastern Asia, have forced the firm to seek a new partner that can bring in fresh capital.
In addition to buying up factories in former communist states, Daewoo also may have overextended itself by pushing ahead with the construction of a $1 billion plant in Korea and by assuming half the debts of bankrupt Ssangyong Motor Co. in a recent takeover bid.
Daewoo had become indebted by as much as $18 billion by the end of 1996 -- about six times as much as the total value of shares in the firm. The impact of Asia's economic crisis is only starting to be seen in car sales figures. Last month, Daewoo sold only about 16,000 vehicles. That compares to more than 45,000 sales in January of last year.
GM Korea president Alan Perriton says it would be logical to presume that Daewoo has financial concerns. GM officials confirm that negotiations are aimed at bringing some form of capital investment to Daewoo. But Perriton denies that Daewoo has asked GM to "come to the rescue."
Perriton also refused to say if GM would take a stake in the Korean company. But he said a merger of the firms through acquisition is one possibility under consideration. He said GM remains open to several options ranging from marketing to financing to distribution and co-production of vehicles.
Other GM officials say that Asia is their primary consideration in the talks. But the Financial Times of London reported today that GM also is interested in buying or sharing Daewoo car plants in eastern Europe in order to expand its own market share and capacity there.
Daewoo and GM already have agreed to share production at the Ukrainian AvtoZAZ plant, which was bought by Daewoo last September. Analysts in Seoul say they also expect GM models to be built in the future at Daewoo's production facilities in Poland and Romania.
If that proves to be the case, Daewoo's talks with GM could eventually result in more jobs and investment in those countries.
About 50 percent of Daewoo Motor was owned by GM from 1978 until 1992 when Daewoo bought out GM's shares. Kim Woo Choong, chairman of the Daewoo Group, complained at that time about what he regarded as GM's conservative attitude toward his global expansion plans.
Korean newspapers have reported this week that Daewoo is prepared to sell half of its car company to GM by February 7. But while GM officials say they will "move ahead aggressively" on the talks, they say no fixed timetable has been set.