GM needs to reach out, too

GM needs to reach out, too

GM Chairman Fritz Henderson is expected to visit Korea this week to determine the fate of GM-Daewoo Auto & Technology with Korea Development Bank.

GM Daewoo, which suffered a loss of more than 2 trillion won ($1.7 billion) due to currency-forward dealings, has practically been begging for financial support of more than 1 trillion won from Korea Development Bank. But the KDB has responded to those pleas by saying GM Daewoo should make more efforts to save itself from the debacle. The KDB, a leading creditor bank of GM Daewoo, has repeatedly warned that it will take over GM Daewoo’s management if the automaker does not accept the creditor banks’ conditions for financial aid. The conditions include having the company share its license on made-in-Korea cars, getting creditor banks involved in the firm’s management and guaranteeing a certain amount of auto production for the next five years or longer.

Our belief is that it is in the best interest of all related parties to keep GM Daewoo alive for the long-term, given that automobile production is one of the country’s core strategic industries and has an immense impact on the local job market.

But GM Daewoo at the same time is not entitled to unconditional support from the creditor banks.

Observers believed that the company would issue new shares worth at least 1 trillion won to stay afloat. But GM, which has a 72 percent stake in the GM Daewoo venture, recently expressed its intention to issue new shares worth only 250 billion won. Such action can only be viewed as a failure by GM Daewoo to take responsibility for the enormous losses stemming from ill-advised management decisions. GM genuinely needs to take more actions to save itself if it has any intention of continuing to manage GM Daewoo.

The Korean government and the KDB also need to have clear principles to handle the debacle. They should not discriminate against GM, but at the same time they shouldn’t necessarily do any favors for the company. They should not repeat a previous mistake in which they waited to act until the last moment when struggling Ssangyong Automotive was finally handed over to Shanghai Automotive years ago. The government and the KDB need GM to give them assurances that the firm will resuscitate itself. They also need to take a tougher stance, including cutting off support for GM-Daewoo, if GM does not show solid determination to normalize GM-Daewoo’s operations. They also need to work together to find new mid-and long-term measures to rescue the company by opening themselves to all possibilities.