KDB Demands GM Daewoo Form Hybrid Production Base

Korea Development Bank has requested that General Motors build a production base for hybrid vehicles or fuel-efficient small cars in Korea in exchange for funding its Korean unit GM Daewoo Auto & Technology.

The state-run bank’s overture was made based on the judgment that competitiveness cannot be secured through conventional plant facilities focusing on small cars. The bank will also prepare for the prospect of the U.S. automaker moving its factories from Korea to China or elsewhere in search of cheaper labor.

The bank’s precondition for financing is expected to facilitate negotiations with the automaker over the future of GM Daewoo.

○ Eco-friendly car production

Until now, the bank has reportedly demanded in return for liquidity injection a controlling stake in GM Daewoo, transfer of GM’s research and development center to Korea, and the move of production plants in Australia to Korea.

A high-ranking bank official told The Dong-A IIbo yesterday, “The most significant condition is achievement of GM Daewoo’s competitive edge by establishing a production base for hybrid or small vehicles with high fuel efficiency,” adding, “Other conditions such as the takeover of shares are peripheral to this.”

“If we provide funding without doing anything to the existing production system, GM will move its factories in Korea to China or India in two to three years to increase labor productivity. Then we’ll get no benefit for the financing.”

The bank has pressed GM to help turn its Korean subsidiary into a key production base in accordance with GM’s global strategies at bilateral talks.

○ Additional collateral necessary

The bank also requested a safety measure guaranteeing recovery of the bank’s investment by demanding that GM put up secure collateral. To this request, GM reportedly said at a closed meeting Thursday, “We can offer shares as security.”

The bank, however, demanded that GM headquarters give security or that its factories be put up collateral.

It is difficult, however, for GM to offer expensive properties as collateral. The automaker cannot afford to do so because it has put up three GM Daewoo factories as collateral for its bondholders in exchange for the rollover of the subsidiary’s forward exchanges.

Given this, the bank is also considering joint funding with other financial investors. GM Asia Pacific President Nick Reilly hinted at additional negotiations shortly after a meeting with the bank Thursday, telling reporters that GM will hold another meeting with the bank soon.

○ Experts hail strategies

Automotive industry experts praised the bank’s negotiation strategy, with one saying, “They are proper measures to overcome the crisis and secure a growth engine at the same time.”

Another said the transfer of hybrid technology will further strengthen GM Daewoo’s competitiveness because it already possesses the know-how for small car production.

Kim Ki-chan, president of the Korean Academy of Motor Industry, said, “If the current situation continues, GM Daewoo should compete with GM Shanghai. So the production of eco-friendly cars is a good negotiating card for Korea.”

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