policies across Asia led to financial collapse. One by one, currencies were
falling off a cliff, from Thailand to Indonesia, wiping out the savings of
farmers and workers and later prompting Indonesian students to rise up and
topple their longtime dictator, Suharto. Harried American officials
suspended trading on the New York Stock Exchange, reacting to its worst
decline ever in a single day until then, as the contagion spread to Japan,
Brazil, and Russia.
Despite the “Asian financial crisis,” as it was called, Chairman Lee
stubbornly insisted that Samsung become an automaker.
“I’ve studied the automobile industry more than anyone else....There
are concerns that we made a mistake in starting the automobile business,
but I am confident that Samsung Motors, which will be launched in March
1998, will put these misunderstandings and fears to bed.”
The Samsung Group had been loading up on debt, as a result of this and
other aggressive expansions. Interest payments alone were crippling
Samsung Electronics’ respectable operating profit in 1996 of $1.8 billion—
which after deductions came to a net profit of $202 million.
In March 1998, as Korean companies were defaulting on their loans,
Samsung’s first car rolled off the $3 billion assembly line in the southern
port city of Busan.
Samsung employees rushed out to buy up their employer’s cars. In doing
so, they saved the company, since these sales accounted for most of
Samsung’s 45,000 automobiles sold that year—low for a plant that could
manufacture 80,000. Worse, Samsung was losing $6,000 per vehicle. The
next year, car sales fell precipitously to fewer than 7,000.
It was a painful moment—the worst loss of face for the chairman since
he became the head of Samsung. Samsung Motors went under creditor
protection and was later bought by Renault in a fire sale, which created
Renault Samsung Motors. Samsung’s name was kept, since the company
held on to a minority ownership.
Samsung instituted emergency financial measures unheard of in South
Korea.
“There was a sense that this entire company could go down,” Samsung
Electronics CEO Yun Jong-yong later told Fortune. “It was that extreme.”
South Koreans donated their gold rings and trophies to help the
government pay its colossal bill to the International Monetary Fund, which
had just approved the largest bailout in its history up to then—$55 billion.