Daewoo Motor Case Reexamined

The government has shown total inexperience in its handling of the sale of Daewoo Motor. Due to misjudgment and a lack of strategy, it has wasted several months waiting for Ford to complete its inspection of the company and now it is at a loss for what to do after Ford＇s abrupt withdrawal from the Daewoo bid. Yesterday the government proposed that a company be allowed to acquire Daewoo first before carrying out due diligence. The reasons for the government＇s haste are understandable, but does it really think that the Daewoo case will be solved in this way? Furthermore, it is making a big mistake if it expects GM to play to its tune after it has already exposed its strategy.

Since Daewoo Motor became subject to its restructuring plan in August last year, the government＇s lack of strategy has been the predominant theme. In particular, in June the government unexpectedly selected Ford as the sole negotiation partner and disclosed the bidding price, which ultimately led to the current stalemate. The government must be held accountable for these mistakes. It claims that such action was inevitable because of the big difference in bidding prices and the lack of time. However, its failure to have a back up plan in place shows a lack of professionalism and general ignorance.

The Korean side continued to behave with lamentable ineptitude after Ford announced it would pull out of the bid. When you play a card, the basic rule is not to show your hand to the other players. Lee Hai-chan, chief policymaker of the ruling Millennium Democratic Party, as well as officials of the Ministry of Finance and Economy, the Financial Supervisory Commission, and the Daewoo Restructuring Committee all freely expressed their opinions, driving themselves even further into a corner. Some said Hyundai should not be selected as the buyer, while others said proposals would be accepted within ten days and the acquisition partner would be chosen within a month. Then finally they came up with the farfetched plan of letting a company acquire Daewoo first before carrying out due diligence.

It is true that losses snowball as the sale is delayed; it costs as much as 100 billion won ($89 million) a month to operate Daewoo Motor. It is also understandable that the government feels under pressure: if the situation takes a long time to resolve, the devastated domestic financial market will deteriorate and Korea＇s credibility in the international community will plummet. Even so, it will not do to make haste in this fashion. The negotiations are for an international tender worth several trillion won. At the same time, the automobile sector has an enormous impact on many other domestic industries.

The government must keep a cool head and keep its options open. It should come up with strategies and tactics that will not compromise national interests and will minimize the burden suffered by domestic industry. If safety measures against the side effects of a monopoly are formulated and the funds can be secured for it to buy Daewoo, there is no need to exclude Hyundai from the outset. The opportunity to bid should also be open to other automobile companies, such as Renault. In the worst-case scenario, Daewoo could be managed as a public firm on a temporary basis. Of course, it goes without saying that selling Daewoo to a foreign company at a good price is the best option. However, there is no need to cling to GM if doing so will be detrimental to domestic industry and the Korean economy in general.

If Ford pulled out because Daewoo really has problems, as rumor has it, it will be very difficult to find a buyer in the next round. On this matter, too, the truth must be revealed.

by Kim Young-bae