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Circuit City Collapse Fuels Real Economy Fears

Posted November. 12, 2008 08:20,   


The bankruptcy filing of Circuit City, the No. 2 U.S. consumer electronics retailer, has rattled the U.S. economy and fueled fears of a spillover effect to Korea.

Economists say the bankruptcy could affect Korea’s Samsung Electronics and LG Electronics since both companies supply goods to the retailer. Worse, the top U.S. carmaker General Motors is considering suspending operation at all plants owned by its Korean unit GM Daewoo Auto & Technology.

The spate of bad economic news has economists worried that the damage to the U.S. real economy will spread to Korea.

The U.S. financial crisis is showing no signs of calming down with the record net loss of Fannie Mae, a company that was bailed out by the government, and a bigger bailout planned for AIG.

Circuit City filed for bankruptcy Monday at the U.S. Bankruptcy Court in Richmond, Virginia. With 1,500 stores in North America, the company has seen sales plunge in the wake of higher competition in the consumer electronics industry.

With consumption reeling from the financial crisis, Circuit City announced third-quarter losses of 239.2 million dollars, triple that of a year ago.

Fannie Mae, which was bailed out by the U.S. government in September, announced a record net loss. Its third-quarter net loss surged from 1.52 billion dollars (down 1.56 dollars per share) from a year ago to reach 29 billion dollars (down 13 dollars per share).

Washington announced a new bailout plan worth 150 billion dollars for the largest U.S. insurer AIG. The package includes buying up 40 billion dollars of AIG preferred stock. The Federal Reserve Board had initially announced a rescue plan amounting to 85 billion dollars.

General Motors’ sharp decrease in sales is forcing the company to consider suspending the operation of its Korean unit GM Daewoo.

GM Daewoo said yesterday, “In the wake of the global financial crisis, exports as well as sales in the Korean market have sharply fallen. We’re discussing with GM whether to suspend our operations. The decision will be made by the end of this month.”

A GM Daewoo executive added, “If a decision is made to suspend operations, all manufacturing lines scattered across Bupyeong, Gunsan, and Changwon will be suspended from Dec. 22. We’ve yet to decide how long they’ll be suspended.”

The company has cut production volume after combined sales (exports and domestic sales) fell 10.6 percent from the previous year to 73,733 units in October.

higgledy@donga.com jinhup@donga.com