[EDITORIALS]Lessons of the Daewoo Sale
Published: 05 Jan. 2003, 20:15
After negotiations that dragged on for a year, Daewoo Motor Co. is finally to be sold to General Motors. We welcome the move in that one of the largest burdens on our economy is lifted, and in that it will improve Korea's external credibility. Although the troubles of Hyundai Investment Trust and Securities Co. and Hynix Semicon-ductor Co. have not yet been addressed, restructuring will progress one more step.
But the memorandum of understanding is no panacea. Nominally, Daewoo was sold for $2 billion, but the actual cost to General Motors will be the $400 million that it will invest in a new entity. The $1.2 billion that creditors will receive in preferred stocks cannot be sold for 10 years, making them worthless if things go wrong. Although the worst scenario, liquidation of Daewoo, was averted, it is doubtful that the public will cheer the terms and conditions of the deal, even though the government says it was the "inevitable choice."
On top of this, if General Motors is granted the status of a foreign investment group, it will get exemptions from corporate, acquisition and registration taxes. If the government allows a grace period for paying the special consumption tax, as is requested by General Motors, local companies may complain of reverse discrimination.
The memorandum of understanding is not legally binding, so Daewoo still may face many obstacles before a contract is complete. Daewoo's Bupyeong plant will be managed by the entity to be set up, which will decide whether to buy it in six years, but that outcome is doubtful. Additional restructuring is needed in the plant and its facilities are old. The Bupyeong plant is required to make diligent efforts to improve productivity and to stand on its own.
Under GM, Daewoo becomes the third power player in the domestic car market, after Hyundai-Kia and Renault-Samsung. Tumul-tuous change is expected in the domestic car market, but we hope Daewoo's plants will not become a mere component assembler. We expect GM's purchase to lead to synergy through the transfer of advanced technology.
The collapse of Daewoo can serve as a mirror of the faults of our economy. We suggest writing down the whole story as a lesson to all of us.
But the memorandum of understanding is no panacea. Nominally, Daewoo was sold for $2 billion, but the actual cost to General Motors will be the $400 million that it will invest in a new entity. The $1.2 billion that creditors will receive in preferred stocks cannot be sold for 10 years, making them worthless if things go wrong. Although the worst scenario, liquidation of Daewoo, was averted, it is doubtful that the public will cheer the terms and conditions of the deal, even though the government says it was the "inevitable choice."
On top of this, if General Motors is granted the status of a foreign investment group, it will get exemptions from corporate, acquisition and registration taxes. If the government allows a grace period for paying the special consumption tax, as is requested by General Motors, local companies may complain of reverse discrimination.
The memorandum of understanding is not legally binding, so Daewoo still may face many obstacles before a contract is complete. Daewoo's Bupyeong plant will be managed by the entity to be set up, which will decide whether to buy it in six years, but that outcome is doubtful. Additional restructuring is needed in the plant and its facilities are old. The Bupyeong plant is required to make diligent efforts to improve productivity and to stand on its own.
Under GM, Daewoo becomes the third power player in the domestic car market, after Hyundai-Kia and Renault-Samsung. Tumul-tuous change is expected in the domestic car market, but we hope Daewoo's plants will not become a mere component assembler. We expect GM's purchase to lead to synergy through the transfer of advanced technology.
The collapse of Daewoo can serve as a mirror of the faults of our economy. We suggest writing down the whole story as a lesson to all of us.
with the Korea JoongAng Daily
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