GM Failure May Have Limited Impact on Korea

The Korea Times

The Korea Times

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Fri, December 8, 2023 | 07:45

Business

GM Failure May Have Limited Impact on Korea

Posted : 2009-06-01 18:53

Updated : 2009-06-01 18:53

By Kim Jae-kyoung
Staff Reporter

The bankruptcy of General Motors (GM) would create a major change on the global auto industry landscape, but it is likely to have a limited impact on the Korean economy and financial market, according to market analysts Monday.

They pointed out that the GM factor has already been widely recognized by market investors and that it is expected to clear away market uncertainties surrounding the world's second largest carmaker.

``Investors have expressed concerns over the possibility of a GM bankruptcy since late last year, and those concerns have already been factored into the financial market,'' Samsung Economic Research Institute senior economist Kwon Soon-woo told The Korea Times.

``In that regard, the bankruptcy filing can remove market uncertainties, having only a limited impact on the local market. In addition, the U.S. government's clear stance on the GM issue will limit the aftershocks of the bankruptcy,'' he added.

In particular, the impact is expected to be short-lived and minimal, as GM Daewoo, the Korean unit of the U.S. automaker, will likely be incorporated into a good GM or new GM.

After talking with the Korea Development Bank (KDB) in Seoul, Thursday, Nick Reilly, head of GM Asia Pacific, said that GM Daewoo will likely be incorporated into a good GM even if the company files for bankruptcy.

``I think GM Daewoo should be in a good GM. We strongly recommend that. If GM files for chapter 11, then I would expect GM Daewoo to be a good GM,'' he said.

For local automakers such as Hyundai Motor and Kia Motors, the bankruptcy of GM could be both an opportunity and a threat: a plus in the short term but detrimental over the long term.

With the collapse of GM, which holds the biggest market share in the United States, local automakers will have a chance to increase their slice of the world's largest car market. Hyundai and Kia are expected to raise their combined market share to 8 percent this year from 7.5 percent, according to experts.

However, in the long term a GM bankruptcy is expected to dampen the U.S. car market, which will reduce the exports of local companies. Subcontractors of GM Daewoo and local firms exporting auto parts to GM would be likely to see their sales dwindle.

Market experts caution that the government and local firms should be cautious about the bankruptcy's secondary effects on the local economy.

``If the new GM does not operate well and fails to return to profitability even after the U.S. government purchases a controlling stake, it could deal another blow to the U.S. economy, which will in turn hit the Korean economy and financial market,'' Kwon said.

In the meantime, the state-run KDB has claimed that it will provide financial support for GM Daewoo only when GM promises to make its Korean unit the main production base of small cars.

The KDB currently holds a 28-percent stake in GM Daewoo, with the remainder being controlled by GM. GM Daewoo has asked since February for the KDB to provide one trillion won ($795.6 million) in financial assistance, but the lender has been reluctant to give aid, citing uncertainty surrounding the U.S. automaker.

kjk@koreatimes.co.kr