SK hints at liquidating Daewoo Motor

SK hints at liquidating Daewoo Motor
REUTERS

SEOUL, NOV 22: South Korea’s Finance Minister Jin Nyum hinted on Wednesday that ailing automaker Daewoo Motor could be liquidated unless its Union agreed to restructuring involving hefty job cuts.

An original plan rejected by the unions had called for laying off 3,500 employees, nearly 20 percent of its domestic workforce, but some creditors want even stiffer cuts that analysts say might range as high as 30 per cent or more.

“Daewoo Motor will not be permitted to go into receiver ship unless its Union agrees to a restructuring plan,” Jin was quoted as saying by his spokesman Lee Boo-sun.

Lee said the finance Minister’s comments could be interpreted as meaning liquidation would be the only option for the country’s third-largest automaker if the court rejected its receivership application.

Kim Il-seob, chairman of Daewoo Motor’s 13,000-strong Union, told Reuters that Union representatives were meeting to discuss whether to accept the company’s restructuring plan. “We will be able to announce our position after the meeting later in the day,” said Union leader Kim. “Again, we feel displeased with the way the government is treating us.”

The carmaker, which held about $8 billion in interest-bearing debt as of June 30, slid into bankruptcy two weeks ago and banks anxious to sell it have demanded job cuts from the Union in return for fresh funding.

Daewoo Motor has not been able to pay its 19,000 employees since August after creditors cut its credit lines, demanding drastic job cuts and other cost-cutting measures to make it more palatable to a foreign buyer.

Creditors have been talking with General Motors and GM’s partner Fiat about a possible sale. Consultants Arthur Andersen are working on a plan to see the company through receivership and ideally into the arms of a buyer.

GM group vice president Rudolph Schlais told Reuters lastweek the US auto giant remained interested. But it will be a tough sell. Due to its troubles, Daewoo Motor has been incurring about 150 billion won ($128.7 million) of operating losses a month as its main plant in Pupyong, in the western outskirts of Seoul, has been bought to a halt since early November.

Depressed local sales have forced other plants in Kunsanand Changwon to cut operations. Daewoo’s Financial woes have sparked government warnings in Poland and Ukraine of possible state intervention if its ventures in the two countries are imperilled.

Daewoo Motor officials said the court would decide whether to accept Daewoo Motor’s receivership application by early December. The government hopes Daewoo could be restructured and saved as Kia Motors and Samsung Motors were after they also plunged into financial turmoil.

Creditors have spent almost two trillion won supporting the automaker since they put it and 11 other Daewoo Group companies under a debt workout programme in August 1999. It may be hard to please the unions. Analysts estimate a cut of about 30 percent or even more in Daewoo Motor’s workforce will be needed as operating losses soar and factory utilisation rates drop below 50 per cent. “But at the same time, the government should come up with a set of packages, which will keep angry workers from the streets,” said SH Song, analyst at Dongwon Securities.

Union workers have already threatened to organise massive industrial actions with help from the nation’s two umbrella Union groups the Federation of Korean Trade Unions and Korea Confederation of Trade Unions. Union leader Kim has said the automaker’s management shouldbe held responsible for reckless investment expansion and creditors for sub-standard credit analysis.