Daewoo Motor Declared Bankrupt

S E O U L, South Korea, Nov. 8, 2000 -- Long-ailing Daewoo Motor Co. was officially declared bankrupt today after its hard-boiled labor union rejected a restructuring plan that calls for layoffs,creditors said.

“The union has refused to submit its consent to therestructuring plan. We can’t wait any longer. Daewoo’s bankruptcy has become formal,” said Yang Mun-suk, a spokesman for Daewoo’smain creditor, Korea Development Bank.

Could Affect GM Deal

Creditors said the next expected step is to put the company under court receiveship — a process that will install new management and freeze all debts.

The auto firm was to have been officially declared bankrupt early today after it defaulted on $78 million in commercial papers for two straight days.

But after overnight talks with management broke down, the union called a last-minute meeting of its own to discuss its future course of action. That meeting ended without consent to the restructuring plan, which would have prevented bankruptcy.

The centerpiece of Daewoo’s restructuring program is an 18 percent layoff of the union’s 18,000 members. The union had rejected the demand.

Court receivership will put creditors at a disadvantage as they try to sell the troubled firm to General Motors Corp. GM has been negotiating to purchase the South Korean carmaker since September.

Creditors worry that sale of Daewoo to GM could be delayed because the American firm may offer a lower price. In hotly contested international bidding earlier this year, GM reportedly offered a price of between $4 billion and $5 billion.

An Easy Way In?

Daewoo, a former symbol of the nation’s economic expansion, hasbeen on a debt-workout program since July 1999.

Last week, creditors stopped sending new funds to Daewoo,demanding that its union accept layoffs. Daewoo executives said thecompany cannot survive “even a day” without funds from creditorbanks.

Daewoo officials said the company has $155 million incommercial papers due this week but it has no financial resourcesto honor them.

If Daewoo is put under court receivership, its 550 main subcontractors could collapse in a chain reaction. Receivership would install new management and freeze all debts.

Some auto analysts said court receivership may help overhaul theinefficient carmaker ahead of a buyout by GM.

South Korea’s two other once-troubled car firms — Kia MotorsCorp. and Samsung Motors Inc. — were sold to Hyundai Motor Co. andRenault SA of France respectively after being put under courtreceivership.

Although heavily indebted, Daewoo could provide an easy way forforeign auto giants to crack open South Korea’s car market andserve as a stepping stone into nearby China, one of thefastest-growing car markets in Asia.

Daewoo has the capacity to make 2 million vehicles a year athome and abroad.