GM Reliance on Korea Unit May Grow Under Plan for U.S. Bailout

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GM Reliance on Korea Unit May Grow Under Plan for U.S. Bailout

By Seonjin Cha

Feb. 18 (Bloomberg) -- General Motors Corp. would become more reliant on its South Korean unit under a turnaround plan that may be funded with as much as $30 billion in loans from the U.S. government.

The largest U.S. automaker plans to shut five domestic plants, fire 47,000 workers worldwide this year and sell or shut brands including Hummer and Saturn. GM Daewoo Auto & Technology Co.’s main strengths, small cars and Chevrolet-brand cars aimed at emerging markets, both avoided the axe.

“That obviously benefits GM Daewoo,” Jay Cooney, a spokesman for the unit, said by phone today. The impact of the global job cuts on the unit should be “very minor,” he added.

GM, already propped up by U.S. loans, yesterday asked for as much as $16.6 billion more as it strives to avoid bankruptcy. To support the request, it laid out plans to return to profit, including a focus on its “strongest” global brands and greater emphasis on smaller cars, such as the Korean-made Chevrolet Cruze.

“GM Daewoo is the future for GM,” said Lee Jin Sik, a Seoul-based analyst at CSM Worldwide Inc. “The carmaker isn’t capable of building small cars efficiently in the U.S.”

GM acquired Bupyeong, South Korea-based GM Daewoo in 2002 from the then bankrupt Daewoo Motor Co. It accounts for about 20 percent of GM’s global manufacturing volume, Cooney said. The unit sells cars in South Korea and exports them to more than 150 markets worldwide. About 60 percent of exports are under the Chevrolet brand, according to the company.

Small Cars

GM needs at least $9.1 billion more to finish restructuring, it said yesterday, and that sum could rise to $16.6 billion should the economy worsen. The Detroit-based carmaker has received $13.4 billion since December.

GM Daewoo will begin shipping the Cruze small car, which it helped develop, to Europe next week. GM also plans to introduce the model in China this year. The Detroit-based carmaker is focusing more on small cars as the recession and rising unemployment damp demand for gas-guzzling trucks and sport- utility vehicles.

The slowdown has also forced GM to suspend plans for mid- size pickup and diesel engine production in Thailand. The carmaker will also halt an expansion project in India because sales are lagging behind estimates.

The Korean unit has not escaped plunging global auto sales. It has idled one factory for more than a month since December after sales fell 8.1 percent last year. In January, sales more than halved to 45,842 units. Full-year production may drop 15 percent because of the falling demand and damage done to the GM brand by its financial woes, said Lee at CSM.

The won’s 35 percent plunge over the past year has offset some of the impact of falling demand on GM Daewoo by boosting the value of repatriated sales. Furthermore, its focus on smaller cars means it will become central to GM’s future, said Kang Sang Min, an analyst at Tong Yang Securities Inc.

“It’s hard to find a more efficient production and R&D base for the small-car division within GM group,” said Kang. “If GM wants to have a sustainable business, the Korean unit must be central to its plans.”

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

Last Updated: February 17, 2009 23:04 EST