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East: Factories At Stake As Daewoo Seeks New Owner

Deep financial difficulties at South Korea's Daewoo auto company are putting the future of its factories in Poland, Ukraine, Romania, and Uzbekistan in doubt. Daewoo may soon have a new lease of life under a new owner, but are the Eastern European plants likely to survive? RFE/RL's Breffni O'Rourke looks at the issues.

Prague, 2 August 2000 (RFE/RL) -- Daewoo motors is in practical terms bankrupt, but there is no lack of interest among international bidders to take over the South Korean company and rejuvenate it.

That's because it has modern, high-capacity production facilities and an attractive model range which sells well around the world, from Asia to Eastern Europe. Despite Daewoo Motor Company's overall liabilities of at least $15 billion, its sale has drawn bids from Ford and General Motors of the United States, as well as the German-led Daimler-Chrysler group.

The Daewoo Restructuring Committee nominated Ford as preferred bidder, with an offer of close to $7 billion. In recent weeks, experts commissioned by Ford have been visiting Daewoo factories, including the production plants at Zaporizhe in southeast Ukraine and Kraiova in southern Romania, to assess their commercial viability.

One of the top officials of the Ukrainian AvtoZAZ-Daewoo joint venture, Oleh Papashev, this week gave a pessimistic assessment of the experts' conclusions. He is quoted in local press reports as saying their interest in the plant is "equal to zero." The joint venture is Ukraine's largest investment project, but it has always run well below its production capacity.

British auto industry expert Mark Bursa, of the Financial Times organization, says the history of the Zaporizhe plant has been difficult:

"The Ukraine operation has never really got off the ground at all, and it has been struck with all kinds of management wrangles and bust-ups between the Koreans and the Ukrainians, and I would think that that operation is of marginal importance to anybody."

In Romania, the Kraiova plant has also been visited by experts, but a source at the factory says nothing has been made known of their conclusions. The source says no one at the plant knows what the future holds for them.

Kraiova, like Zaporizhe, is working far below capacity, with a present production rate of some 25,000 vehicles a year from assembly lines designed for a production of 100,000 units annually.

Analyst Bursa, however, is not particularly gloomy in his own assessment of the Romanian situation, noting that Daewoo's new owner may be interested in preserving that plant to fend off local competition. He says:

"The Romanian situation is very complicated by tax breaks and imports, and by the fact that the government keeps changing its mind on whether it allows imports of used cars, but with Renault moving into that market too, it's possible that the Daewoo Romanian operation will come back to life again."

Another auto industry expert, Frankfurt-based Christian Breitsprecher of Deutsche Bank, says that in principle, the East European operations of Daewoo should be a valuable asset to any new owner -- but it all depends on their eventual viability:

"Basically the operations in Eastern Europe and the emerging markets is one of the most interesting parts of Daewoo. They have been so aggressive in prices that they have never made a penny on these things, but I think that a new owner will probably take a very close look at these [eastern] operations and see which of these operations has the potential to return a profit in the foreseeable future, and what kind of things are just totally useless expansions."

Both Breitsprecher and Bursa agree that the brightest prospects for Daewoo's Eastern European activities lie in Poland, where its operations center on the former FSO plant in Warsaw. Bursa says:

"The Polish one certainly does [have a future], I mean the Polish operation is absolutely central, it is one of the main things than anyone buying Daewoo would want, because it has a dominant position in the market -- over 30 percent market share. Poland will soon be joining the European Union, and that will give whoever buys Daewoo access to a low-cost producer with a high-volume factory, and a brand that is very successful in East Europe already and is growing in popularity in the West."

The overall picture at Daewoo should clarify in the coming months, along with the future prospects for its car production in Eastern Europe. Bursa has some consoling words even for the Zaporizhe plant, saying that Daewoo or some other car-maker might be interested in keeping the plant running as a long term strategic commitment to what should, eventually, be an important market.