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GM Korea was formed in late 2002 when, after years of negotiation, General Motors reached an agreement to take control of struggling Korean car company Daewoo Motors. This had been the highest profile unit of the Daewoo industrial conglomerate, once one of the world's largest corporations before it encountered severe financial problems in the late 1990s. Founded as a textile business, the company became one of the pioneers of Korea's economic revolution, expanding into every conceivable industry during the 1970s and 1980s. Yet the entire group was underpinned by a labyrinthine network of inter-company loans which disguised the fact that almost all of its divisions were was racking up staggering losses. Unable to meet its debts, the group imploded in 1999 and was carved up by its creditors. After continuing under the GM Daewoo name for several years, the business was rebranded as GM Korea in 2011. All its models are now marketed under the Chevrolet or Cadillac brands, in Korea as well as in other global markets.
Daewoo's car business withered between 1997 and 2002 as it struggled to avoid extinction. After a slow start, performance improved dramatically under GM after 2004, and the business arguably surpassed the level of success it previously enjoyed as a Korean-owned manufacturer. However, it continues to labour well behind rivals in its domestic market. The company does best in the international market, despite the fact that the Daewoo brand was abandoned there in favour of other group-owned marques, notably Chevrolet. Nevertheless, Daewoo's model range and manufacturing facilities have proved a valuable asset to GM, strengthening the group's portfolio in the US and Asia, and supplying an ideal platform for the launch of Chevrolet in Europe.
GM Daewoo Auto & Technology (GMDAT) was established in 2002 to take over some of the manufacturing operations and brands of the former Daewoo Motors. It is now Korea's second biggest car manufacturer (after Hyundai-Kia), producing nine models ranging from small compacts to luxury sedans. It has five manufacturing facilities in Korea as well as an assembly facility in Vietnam. In addition, the company exports vehicle kits for local assembly at other GM facilities in Asia and Latin America. General Motors is the controlling shareholder, with a stake which increased to almost 51% by mid 2006. Its Asian partners Suzuki Motors of Japan and Shanghai Automotive Industry Corporation (SAIC) of China are also shareholders, with 11% and 10% stakes respectively. Daewoo's creditors own the remaining shares. Separately, SAIC owns rival Korean manufacturer Ssangyong Motors (the 5th largest manufacturer in Korea). Acquired by Daewoo Motors in 1997, it was re-established as an independent company in 2000, before being acquired by SAIC in 2003. Daewoo's Korean sales arm still handles local distribution and marketing for the brand.
The main benefits to GM of Daewoo were its low-cost manufacturing facilities, a selection of locally designed and produced small cars and sedans, and the sales network already established in Korea and other Asian markets. Yet the Daewoo brandname proved to be of only limited value, especially outside Asia. Although it carved out a significant position in Western Europe during the 1990s, Daewoo's subsequent financial problems led to a sharp decline in quality, and the carmaker's reputation was considerably tarnished by the time it was rescued by GM. The American company attempted to win back lost ground in Europe in 2003 but with little success. In the end GM took the decision to rebrand all its Daewoo models in the US and Western Europe under the core Chevrolet brand. The Daewoo name was dropped in Korea as well from 2010. For 2013, Chevrolet was the local #3 manufacturer in Korea with sales of 151k units, well behind market leaders Hyundai and Kia. A new luxury sedan was launched in 2013 under the banner Alpheon. It is separate from the group's other brands in a style similar to Toyota/Lexus, Nissan/Infiniti and Honda/Acura.
Most of the other main components of the old Daewoo group now operate as independent entities, in most cases controlled by creditors who swapped their debts for equity. Daewoo Electronics struggled on as a manufacturer of consumer electronics, although it had abandoned products such as TVs and DVDs in favour of home appliances such as fridges, microwaves, washing machines and vacuums. In 2005 the company was put up for sale by its creditors. A deal was agreed in 2006 with India's largest consumer electronics manufacturer Videocon and the European arm of US buyout firm Ripplewood. However that deal later collapsed after a downturn in the company's performance. Daewoo Electronics was put up for sale once again in 2007, and was eventually acquired by Dongbu Group, becoming DongbuDaewoo Electronics.
Daewoo International is a standalone trading company, exporting Korean metal, automotive components, machinery, electronics, textiles, chemicals, general merchandise and telecommunications equipment to over 165 countries. It also runs the Daewoo Department Store chain in Korea. Daewoo Engineering & Construction is Korea's leading construction and engineering companies. Acquired in 2006 by Kumho Asiana Group for $5bn, it was put up for sale once more in 2009. Previously Daewoo Heavy Industries manufactured a broad range of machinery, construction equipment, industrial vehicles, diesel engines and defence industry products. The business was split up to create two independent companies, DSME (Daewoo Shipbuilding & Marine Engineering) and Daewoo Heavy Industries. The latter was sold in 2005 to competitor Doosan for around $1.8bn, and is now Doosan Infracore. The group's financial services operation Daewoo Securities was taken over by Korea Development Bank in 2000.
Kim Woo-Choong founded Daewoo in 1967 as a textiles manufacturer. The company quickly established outposts in Singapore, Australia and Germany in the late 1960s and early 1970s, with sales reaching $40m by 1972. In 1973, the company began to acquire other Korean businesses in a wide variety of sectors including construction, financial services, garment manufacturing and leather goods. The company went public the same year. In 1976, the Korean government brokered a deal for Daewoo to take over a failing industrial firm, which became Daewoo Heavy Industries. Meanwhile the group's construction arm took on a series of lucrative but high risk projects in Libya and other sensitive middle Eastern countries. Shipbuilding followed, with the acquisition of a new shipyard, and in 1978 the company acquired a 50% stake in carmaker Saehan Motor from Korea Development Bank, then joint partners in the business with General Motors. Saehan was one of Korea's first car manufacturers, originally founded in 1937 as an affiliate of Japan's Toyota under the name Shinjin Motor Company. When Toyota pulled out of Korea in the 1970s, Shinjin formed a new partnership with GM, which acquired a 50% shareholding. The company changed its name to Saehan Motor, and began adapting old GM designs for the local market. Following Daewoo's purchase of the other 50% of the business it was renamed once again as Daewoo Motors.
During the 1980s, Daewoo and its fellow "chaebol" (or family-run conglomerates) Hyundai, Samsung, SK and LG, provided the engine for Korea's massive economic growth. By the end of that boom decade the top five chaebol represented a quarter of the country's economy and half of its exports. Daewoo's assets alone were greater than the entire gross domestic product of the Philippines. Fuelled by cheap loans from the government, these sprawling groups began to concentrate on increasing their empires rather than making profits.
During the 1980s, the company moved into computers and telecoms, followed by microwaves, refrigerators and other appliances. Although the car division represented a significant proportion of the company's sales, distribution was limited to Asia, although as part of its partnership with GM, it manufactured the Pontiac LeMans model for the US. In 1990, Daewoo took its first steps into the European car market under its own brandname. It bought out GM's 50% stake in 1992 and by 1995, the company was selling 630,000 cars worldwide with the unusual system of selling direct through its own outlets, rather than through a dealer network. Low prices and an extended warranty helped the company establish itself quickly, especially in the UK, where it sold 1,000 cars a month in 1995.
In 1996, Daewoo ran into trouble at home when chairman Kim was given a two-year suspended sentence for bribing former Korean president Roh Tae-woo to award construction contracts. The company brushed off the consequences of the judgment, but it was a foretaste of worse problems to come. By the late 1990s the group operated across six divisions. Internationally, the best-known operation was Daewoo Motors. In 1997, the company also acquired a majority stake in collapsed Ssangyong Motors, a maker of luxury sedans, vans and mini-buses, followed by a 20% stake in British truck manufacturer LDV. The added expertise did much to repair Daewoo's reputation for patchy quality. After launching its cars into the US market in late 1998, the company overtook Hyundai to become (briefly) Korea's biggest auto company.
The knock-on effects of Asia's economic crisis of the late 1990s brought a sudden end to the comfortable existence of the Korean chaebol. The Korean economy was bailed out by the IMF on condition that the chaebol streamline their operations, closing loss-making divisions and reducing diversity. As a result the Korean government forced the five to agree to restructure, swapping subsidiaries with one another. But despite the agreements, the groups stalled interminably over actually putting their promises into practice. For example, Daewoo agreed in principle to swap its electronics division for the car division of rival Samsung. But the so-called "Big Deal" foundered when Daewoo refused to take on Samsung Motors' $3.6bn of debt. As a result, the car plant went into receivership (and was later acquired by Renault).
As a result of all this stalling, Daewoo's debt burden pushed it ever closer to bankruptcy. Mid-1999, with debts of $50bn, several loans falling due, and insufficient cash to pay them off, the group had to get an extension by offering $8.3bn of assets as collateral. With bankruptcy looming, Daewoo's biggest creditors, mostly state-owned banks, took control of the group's restructuring plan. Fearing that a collapse of the country's second-largest chaebol would lead to a meltdown in the country's economy, they agreed to carve Daewoo up. In late 1999, the first sales were tentatively negotiated. US investment group Walid Alomar & Associates agreed to acquire the operations of Daewoo Electronics, while Luxembourg-based General Mediterranean Holdings agreed to buy the Daewoo-owned Seoul Hilton hotel. The group's bankers also opened exclusive negotiations with former partner General Motors over some form of cooperation or takeover of the Daewoo Motors business. However before the end of the year the electronics and hotels deals had both collapsed after the discovery of apparent inconsistencies in the group's accounting practices.
In October, group founder Kim Woo-Choong and his family fled the country and went into hiding. A month later Korea's Financial Supervisory Committee released new estimates of the size of Daewoo's debt. Instead of the $40bn originally acknowledged, the combined group debt was now estimated to be as much as $75bn, making it (at the time) the biggest ever corporate insolvency. As negotiations with General Motors also foundered, Daewoo Motor was finally put up for auction by the group's creditors. Ford was eventually selected as the preferred buyer, with a bid of $6.8bn, and was granted exclusive negotiating rights until the end of August 2000 to finalize its purchase. But just before expiry of its negotiating period, Ford too pulled out of negotiations.
As the group's creditors committee struggled to find new buyers, the South Korean government announced it would file charges against founder Kim Woo-Choong and 40 other senior executives for a massive accounting fraud to persuade banks to agree billions of dollars in new loans during the 1990s despite the fact that the group was already virtually bankrupt. The government also suspended the licence of one of Korea's biggest accounting firms, which it said had deliberately ignored financial irregularities at Daewoo. In October GM returned to the negotiating table for Daewoo Motor. Meanwhile the struggling car company's creditors reluctantly agreed to postpone debt repayments to allow it to continue operating until a deal was finalized, providing further staffing cuts could be made. Trade unions delayed over implementation of staffing cuts and the company defaulted on a further $77m of loans. As a result, Daewoo Motors' lead creditor, Korea Development Bank, pulled the plug on the company. The threat of loss of all jobs stirred the unions into action. Staff cuts were completed and in return creditors agreed to stump up a further $605m to keep the factories rolling until a deal could be done.
But GM was in no mood to be hurried, preferring to cherry-pick the best assets of the car company. The company's sales continued to plummet during 2001, while the banks supplied further loans of around $100m a month in an attempt to keep it running until a sale could be made. Finally in September 2001, after more than a year of negotiation, preliminary terms for a deal with General Motors were agreed. After more months of negotiation, the agreement appeared to reach another standstill in early 2002 when Daewoo's creditors refused to agree to GM's request to renegotiate certain unspecified aspects of the deal. Finally however the two sides resolved their differences and the deal was signed at the end of April.
In early 2003, Kim Woo-Choong emerged from hiding to be interviewed by Fortune magazine. He denied fraud, but did admit to "window dressing" Daewoo's accounts by shifting assets between different companies within the group, and also agreed that he had precipitated the group's downfall by expanding too fast. Kim spent the next two years moving between Europe and Asia, although no real attempt was made the Korean authorities to capture him. Nevertheless, various other senior Daewoo executives were fined or imprisoned for their involvement in the fraud. In June 2005, Kim voluntarily returned to Seoul and was taken into custody by state prosecutors. A year later the 69-year-old was fined KWon 21 trillion ($22bn) and sentenced to 10 years in jail. However Kim is in very poor health with a heart condition and his jail term was suspended indefinitely. After months of speculation, the Korean government issued Kim with an official pardon on January 1st 2008. However, a fresh set of charges were issued shortly afterwards, accusing Kim from hiding $99m of assets. He was found guilty of these charges in September and issued with a further two-year suspended sentence.
Meanwhile, GM Daewoo has continued to expand to meet the demands of General Motors' various global markets. Between 2003 and 2007 it effectively doubled its employee numbers, and rehired more than 1,600 staff who were laid off at the beginning of Daewoo's troubles in 2001.
Last full revision 27th November 2015
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