Daewoo's US Arm to Declare Bankruptcy

Daewoo's U.S. Arm to Declare Bankruptcy, Dealers Sue GM

DETROIT AP reported that the U.S. arm of Daewoo Motor Co. will file for bankruptcy "within days" according to a company official.

"We basically don't have any products we can distribute anymore," said Mike Mahoney, general manager of field operations at Daewoo Motor America Inc. in an interview Tuesday.

Last month, General Motors Corp. said it would buy a stake in a new company that includes the assets of the bankrupt South Korean automaker Daewoo Motor Co. but not Daewoo Motor America, the company's U.S. distribution arm.

Only 60 employees remain at the company's Compton, Calif., headquarters Mahoney said. There had been as many as 300.

"Given the fact that GM is not picking up the company, it makes sense," said George Peterson, president of automotive research firm AutoPacific Inc.

Meanwhile a federal class action lawsuit on behalf of approximately 300 U.S. Daewoo dealers against GM, Daewoo Motor and the Korea Development Bank will be filed "in short order", according to an attorney representing them.

Statutory actions seeking to block the deal have already been filed with the motor vehicle bureaus in Texas, Florida and Pennsylvania.

All of the actions claim GM broke state franchise laws and misled dealers prior to announcing its deal for a stake in the new company.

GM said the unnamed new company will sell Daewoo brand vehicles outside North America, will sell them in Mexico under a GM brand name and could do the same in the U.S.

The suits allege by selling Daewoos as GM brands in the U.S., the automaker is breaking state franchise laws that forbid a "change of an established plan or system of distribution."

The Florida action also charges GM with withholding information from Daewoo dealers that it planned to exclude Daewoo Motor America (DMA) from the new company.

"We believe the evidence is going to show GM orchestrated and manipulated the demise of DMA as far back as September of last year," said Daniel Myers, a Tallahassee, Fla. attorney whose firm is representing the dealers.

"This is a horror story. Some dealers have inventories of $400,000 to $1.5 million in vehicles and in some instances they can't get retail financing," said Myers.

"The original memorandum of understanding included the U.S. distribution system. Dealers operated with the belief they were going to be a division of GM," said Walter Huizenga, president of the American International Dealers Association, the lobbying group for U.S. dealers who sell foreign brands.

But GM spokesman Jerry Dubrowski countered that the company made public statements early on that it had no intention of selling Daewoo vehicles in the U.S. if the deal was closed and that at least 115 dealers invested in Daewoo after it declared bankruptcy.

"In our judgment there is no basis for Daewoo dealer claims against General Motors relating to this transaction and any such claims would have no merit ... and we would expect to prevail," Dubrowski said.

Indeed, not all dealers agree that GM did not come clean about its intentions with Daewoo.

"GM has continued to produce information to the General Motors dealer body and general public on its ongoing negotiations and discussions with regards to Daewoo," said Bill Brundage, general manager at Jim Fresard Pontiac-Buick-Daewoo of Royal Oak, Mich.

At this point, the dealership doesn't intend to join the lawsuits, but the owner is "reviewing all documents," Brundage said.

On April 29, GM announced it would invest $251 million for a 42.1 percent stake in the new company.

The agreement with Daewoo and the Korea Development Bank creates an as yet unnamed automotive company that would own and operate certain domestic and foreign assets of Daewoo.

Daewoo creditors will contribute $197 million, giving them a 33 percent share with the remaining 24.9 percent interest going to unnamed GM business partners.

The deal is expected to close in two or three months, GM said.

By ED GARSTEN AP Auto Writer