A WSJ.COM News Roundup
SEOUL, South Korea -- Creditors of the long-ailing Daewoo Motor Co.
said the automaker officially declared bankruptcy Wednesday after its
hard-boiled labor union rejected a restructuring plan calling for layoffs.
The decision threatened to choke off operations at Daewoo Motor. Kim
Jong Do, director of corporate communications at Daewoo Motor, said
the company would work with creditors to try to keep production
running normally, and that management would strive to avoid damage
to customers. However, he also said the car maker has enough
components to keep operating for only about a month.
"The union has refused to submit its consent to the restructuring plan.
We can't wait any longer. Daewoo's bankruptcy has become formal,"
said Yang Mun-suk, a spokesman for Daewoo's main creditor, Korea
Meanwhile, South Korean government officials
will meet Thursday to discuss ways of extending
financial aid to Daewoo's suppliers and other
related companies, the Financial Supervisory
Service said Wednesday.
The union's rejection of the restructuring plan is
expected to leave creditors at a disadvantage as
they try to sell Daewoo to General Motors Corp.
A spokesman for GM said the No. 1 car maker is
"still studying the situation to determine what
the implications are, and until then it would be
inappropriate for us to comment'' on the new
Daewoo Motor, which has two million units of
annual production capacity, had been sought
after as a key strategic acquisition in the fast-growing Asian car market,
but now creditors have likely been left with only GM and Fiat as viable
partners. Delays in completing a sale have contributed to a deterioration
of Daewoo Motor's operations, and the company has already had to
shut down a production line in Korea and idle a Poland factory.
A spokesman at Korea Development Bank, a major creditor of Daewoo
Motor, said the company would face bankruptcy proceedings, after talks
between the company's management and union failed to produce an
accord on layoffs.
The company defaulted on its commercial paper on Monday and
Tuesday. Creditors have been withholding new funds from Daewoo
Motor since September, and demanded a reform plan before providing
any further financing. The union, however, refused to budge after hours
of negotiations. A union official on Wednesday said workers wouldn't
submit to large-scale layoffs, even if the company faced bankruptcy.
Last week, Daewoo Motor said it intended to lay off about 18% of its
staff, but the union rejected the plan.
Daewoo Motor has been one of the country's longest-running corporate
problems. The auto maker was put into a special debt-restructuring
program in November 1999, but attempts to revive the company have
been hampered by delays in selling it to a foreign car maker. In
September, Ford decided not to submit a final offer to buy the
company, even though it was selected as a preferred bidder in a June
Daewoo Motor is a member of the Daewoo Group, which creditors
decided to dismantle in August 1999 after it amassed more than 89
trillion won ($78.2 billion) in liabilities. Daewoo Motor's total debt as of
June 2000 was 18 trillion won.
The situation at Daewoo Motor represents a new, tougher stand by the
banks to stop pouring money into the country's weakest companies,
and the banks' actions threaten to put strain on other debt-heavy
companies. Daewoo Motor may also face problems maintaining its
far-flung international operations, which include manufacturing plants in
Poland, Uzbekistan and India. Daewoo Motor's woes are a result of
aggressive, debt-financed expansion plans into risky emerging markets.
Creditors said the next expected step is to put the company under
court receivership -- a process that will install new management and
freeze all debts.
--Wall Street Journal Reporter Michael Schuman contributed to this