GM out of the race for ex-Daewoo plant

General Motors has pulled out of the race to buy an ex-Daewoo car factory in Romania and is talking to Ford Motor and the Renault/ Nissan alliance about buying engines built at the plant.

Nick Reilly, chief executive of GM Daewoo, the US carmaker’s South Korean division, said the company did not need to buy the Craiova factory, which has 3,600 staff. But his division needed the 60,000-70,000 engines it currently buys from the plant, and wanted to increase this to 100,000 a year.

“Our major interest is to secure the engine supplies,” he said.

GM hopes that the Romanian government, which is running the sale of the plant, will force any buyer to keep supplying the engines to South Korea. But he said he had also talked to Ford and Renault/Nissan, which are seen as the most likely possible buyers.

However, any agreement would be complicated by the need for new investment to update the 1.4 and 1.6-litre engines to the latest versions, likely to cost tens of millions of dollars.

Mr Reilly said GM would pay for the investment, but the need for difficult legal agreements between competitors such as GM and Ford could complicate the sale. The Romanian factory is one of several former Daewoo facilities that GM chose not to buy when it took control of Daewoo three years ago. The plant has since been building out-of-date Daewoo models, assembled from components bought from GM.

GM Daewoo is running at close to full two-shift capacity at its five South Korean assembly plants, after rapid growth in exports pushed its sales last year to 1.1m, against an original plan of 700,000.

But Mr Reilly said it would be possible to move to three shifts to expand capacity further, and he hoped this could be done without the South Korean trade unions demanding big pay rises.

GM Daewoo has become a low-cost engineering and assembly business for GM, supplying Chevrolet-branded vehicles to Europe and the US, as well as selling vehicles under the Daewoo brand in South Korea and some developing markets.

Renault is keen to buy the facility to build on the success of its Logan, a low-cost car built at its Dacia subsidiary in Pitesti, Romania. Renault is expected to make further expansion of the Logan, originally aimed at developing markets, part of its long-awaited medium-term plan, due to be announced early next month.