SEOUL, South Korea (AP) â€” Creditors of Daewoo Motor Co. officially declared the ailing automaker bankrupt on Wednesday after its labor union rejected a restructuring plan calling for layoffs.
Daewoo's creditors could now be at a disadvantage as they try to sell the company to General Motors Corp.
The bankruptcy announcement was made shortly after President Kim Dae-jung said his government was committed to restructuring debt-ridden companies from the market to boost investor confidence in the South Korean economy.
``The union has refused to submit its consent to the restructuring plan. We can't wait any longer. Daewoo's bankruptcy has become formal,'' said Yang Mun-suk, a spokesman for Daewoo's main creditor, Korea Development Bank.
Creditors said the next expected step is to put the company under court receivership â€” a process that will install new management and freeze all debts.
The auto firm was to have been officially declared bankrupt early Wednesday after it defaulted on $78 million in commercial papers for two straight days.
But after overnight talks with management broke down, the union called a last-minute meeting of its own to discuss its future course of action. That meeting ended without consent to the restructuring plan, which would have prevented bankruptcy.
In a speech to the National Assembly, President Kim said Wednesday that South Korea had no option but to reform its industries.
``We must end market uncertainty by eliminating the debt-ridden companies that have been a huge burden on our economy,'' Kim said in a speech to mark the submission of the government budget for the next year. The speech was read by Prime Minister Lee Han-dong.
The centerpiece of Daewoo's restructuring program would have been an 18 percent layoff of the union's 18,000 members. The union rejected the creditors' demand.
Court receivership will hinder creditors' ability to negotiate with GM, which has been seeking to purchase the South Korean carmaker since September.
Creditors worry that the sale of Daewoo to GM could be delayed because the American firm may offer a lower price. In hotly contested international bidding earlier this year, GM reportedly offered a price of between $4 billion and $5 billion.
Daewoo, a former symbol of the nation's economic expansion, has been on a debt-workout program since July 1999.
Last week, creditors stopped sending new funds to Daewoo, demanding that its union accept layoffs. Daewoo executives said the company cannot survive ``even a day'' without funds from creditor banks.
Daewoo officials said the company has $155 million in commercial papers due this week but it has no financial resources to honor them.
If Daewoo is put under court receivership, its 550 main subcontractors could collapse in a chain reaction. Receivership would install new management and freeze all debts.
Some auto analysts said court receivership may help overhaul the inefficient carmaker ahead of a buyout by GM.
South Korea's two other once-troubled car firms â€” Kia Motors Corp. and Samsung Motors Inc. â€” were sold to Hyundai Motor Co. and Renault SA of France respectively after being put under court receivership.
Although heavily indebted, Daewoo could provide an easy way for foreign auto giants to crack open South Korea's car market and serve as a stepping stone into nearby China, one of the fastest-growing car markets in Asia.
Daewoo has the capacity to make 2 million vehicles a year at home and abroad.