GM's Schlais explains Daewoo deal


GM Asia-Pacific President and CEO Rudy Schlais says the company now has to sell the deal to employees

By Alex Frew McMillan

SEOUL, South Korea (CNN) -- On Friday, General Motors wrapped up 11 months of talks to buy bankrupt Daewoo Motor.

The GM team is paying $400 million for two-thirds of a joint venture including two Daewoo plants in Korea, its plants in Egypt and Vietnam and its sales subsidiaries in 22 countries.

It is not buying the Bupyong plant, Daewoo's biggest and oldest.

In an exclusive interview, GM's Asia-Pacific President and CEO Rudy Schlais explains the deal and the reasons behind it to CNN's Alex Frew McMillan.

CNN: Why have these talks dragged on so long?

Schlais: These are tough decisions form the creditors' standpoint, and from General Motors' standpoint. We have to satisfy our stockholders that the deal will be beneficial. They have to decide this works for the creditors, or for Korea. They are not easy.

CNN: But you're not done, even after 11 months?

Schlais: Time and the negotiations have been rather long and protracted. Frankly, a definitive agreement still needs to be concluded. It likely won't be signed until the end of the year. We've got the bones of the agreement and now we're putting the muscle and the texture and so forth on it. A lot of [what is unresolved] are just the definitions behind the [financial] terms.

CNN: So what does the deal for Daewoo mean?

Schlais: We think we'll be able to make this thing work. We basically have come to the terms of an agreement. It looks at Daewoo on an ongoing basis.

It certainly helped the economy of Korea to have a resolution at this point. And from a General Motors point of view, we've got the opportunity to make this a win-win.

CNN: The U.S. team buying South Korea's Hyundai Securities hit a hitch on price, after they thought they had a deal. Is that going to happen here?

CNN: Schlais: We're past that sort of discussion. We have all the terms. This is just the detail [that is not settled]. Probably the most significant is on the labor, and getting the people to understand that this is a good deal as outlined. And extremely good for the future.

CNN: What is going to happen to Daewoo's $17 billion debt?

Schlais: With the high debt load of the company, there were very different objectives. Basically a large portion of that is written off. For that, the creditors will have 33 percent of the company. [The creditors are also investing $197 million].

Second, there is a whole series of preferred shares that will pay out, based on the future of the company. The new joint venture will take on a portion of it [the debt], but a relatively small portion.

CNN: What is going to happen to the Bupyong plant?


Schlais, here signing with Daewoo's main creditor, insists GM has a 10-year plan that includes Daewoo selling cars mainly in South Korea and China

Schlais: It will be a contract supplier. At General Motors' discretion, we will be able to assume those facilities. We have a set of provisions that say, if these things occur, things like capacity [targets], then obviously we would have the ability to take them on.

CNN: Did you guarantee jobs? How does this help employees?

Schlais: No, there was no guarantee of jobs. From the employees' standpoint, it provides a level of security. We have reached a memorandum of understanding with the creditors, and that [labor] is the next step. This is a great step forward. There's still a tremendous amount of work to be done.

CNN: Why will General Motors be able to make this work, when Ford walked away?

Schlais: I can't speculate on my competitors. What I can tell you is that we've done a lot of hard study. Because of our heritage previously with the company [GM owned Daewoo as a joint venture until 1992], I think we can operate it as a Korean company.

CNN: You and your partners, including Fiat, are paying $400 million. Is that a fire sale?

Schlais: I think it's a fair price upon where the market is right now. From our standpoint, it still requires a lot of work to be done.

CNN: Analysts say GM lacks a coherent Asia strategy. Why Daewoo?

Schlais: That is their opinion. We probably have shown, as our sales have increased and our market share has increased, that there is a strategy. Here are the results of it. Nothing happens fast.

But we're on a 10-year strategy that has been strongly underway since 1994. We're expanding in the whole Asia-Pacific region. Daewoo is a major part of it because it provides us with an entry to the Asian market.