April 23, 2000: Much as the U.S. auto industry is now struggling amid the credit crisis, South Korean automakers struggled in the aftermath of the Asian Financial Crisis, when French carmaker Renault SA became the first foreign auto company to buy a South Korean peer, agreeing to take over troubled Samsung Motors Corp. from its parent Samsung Group in a $540 million deal.
In 1994, Samsung Motors was launched by Samsung Group's chairman Kun Hee Lee, who reportedly regarded the venture as a means to foster more cooperation between the conglomerate's disparate businesses. With the assistance of Nissan Motors, the venture began selling its first cars, which were mostly rebranded Nissans, in 1998, a year after the Asian Financial Crisis rocked South Korea. Ultimately, the crisis forced Samsung to cut short the venture, leading it to seek a buyer. A natural choice, of course, was Renault, which already owned a stake in Nissan.
Renault paid $100 million in cash and assumed Samsung Motors debt, according to a story in the archives of The Deal's Pipeline (subscribers, see the story). Meanwhile, Samsung retained a 19.9% stake in the company. Renault also secured a 10-year commitment to use the Samsung brand in South Korea, and last year Samsung extended that deal until 2020. Additionally, most Samsung Motors models remain based on Nissan designs.
The Franco-South Korean deal in turn set the stage for other major automakers to bid on bankrupt Daewoo Motors, the nation's second-largest automaker with plants around the globe. Daewoo, like Samsung Motors, fell victim to the Asian Financial Crisis. It had sought in 1996 to break ranks from its larger Western partner, General Motors Corp. (NYSE:GM) and begin designing more locally developed cars. However, the crisis cut this plan short.
Daewoo's sale, which came a year after Renault's purchase of Samsung Motors, mirrored its peer's sale. Although Daewoo, like Samsung Motors, was auctioned off in a heated bidding war between GM, Ford Motor Co. (NYSE:F) and other Western automakers, Daewoo also was ultimately sold to its venture partner, GM.
In some ways, today's financial crisis and the circumstances surrounding U.S. automakers GM and Chrysler LLC share some analogies with the South Korean circumstance. The South Korean automakers were heavily in debt much like today's U.S. automakers and ultimately struggled when demand fell. Additionally, the South Korean government had a hand in the sale of Daewoo Motors and Samsung Motors, and preferred foreign buyers to domestic buyer Hyundai.
Additionally, Treasury Secretary Tim Geithner and Obama adviser Larry Summers, who are part of the Automotive Task Force that the president established to help the U.S. automakers, are likely aware of what happened in South Korea, since the pair are credited with helping prevent the Asian crisis from becoming a global one when Summers was President Clinton's Treasury secretary. In all liklihood, they have told the task force to examine those circumstances. - Matthew Wurtzel
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