The end of the affair?
When South Korea's Daewoo Motor first bought Poland's state-owned car behemoth FSO in the mid-1990s, it looked like the start of a marriage made in heaven.
The Polish government was able to offload a financial millstone onto the shoulders of the Korean Chaebol, whose car-making arm planned to restructure and then sell off the majority of the subsidiaries.
Daewoo Motor, in turn, would be able to use FSO, now renamed Daewoo-FSO, as a springboard to markets around Central Europe and, more importantly, into the rich hinterlands of Western Europe.
For a while it worked and Daewoo became Poland's largest investor with more than $1.4 billion. It was given more than favorable terms by the government including a license to import cars duty free, while it's Asian competitors were stung with a 35% tax.
But while the company was supposed to be investing more in manufacturing, it continued to rely heavily on imports from Korea and gradually came unglued. The money for its long-term plans simply ran out.
The company's zeal to buy into new markets around the world was its undoing. It fueled its growth with a debt that was fed by loans often guaranteed from other Daewoo branches. This week, banks that had provided the life support for more than a year said they'd had enough. The company was in debt to the tune of $15 billion and the courts were called in to take over.
At the same time, a worried delegation of Polish industrialists and ministers flew to Seoul to try to breathe new life into the venture. Unfortunately, they came home with no guarantees as matters had spun out of control.
Predicted layoffs have already started. The Lublin plant, which produces commercial vehicles, has made 1,200 workers redundant and needs at least $100 million to continue. Meanwhile, the main car-making plant outside Warsaw is about to stagger its redundancies, with the first 188 workers being laid off by the end of the year. The zeran plant in Warsaw has already laid off some 700 staff.
Whatever happens now, most analysts agree that the future is not looking too good for Daewoo-FSO. It's still the strongest Daewoo plant in Central and Eastern Europe, but time is running out. The Warsaw factory has enough car components to continue manufacturing for a few more months. But with car component suppliers no longer guaranteed payment, a components shutdown would hit Poland hard.
Meanwhile, rumors that General Motors could still be interested in Daewoo is cold comfort. GM is not interested in the country strategically, with its main manufacturing plants already thriving in Western Europe. As one analyst said, Daewoo-FSO in Poland will simply die a slow death. The entire affair is a disaster for the thousands of workers about to be made redundant. Maybe next time the government should be wary of strangers promising untold riches and asking for duty-free concessions.
