SEOUL — Daewoo Motor Co. Ltd. was expected to unveil a self-rescue plan on Oct. 31 that would include a 15% reduction in its workforce and 30% wages across the board.

The plan is the first step of a restructuring scheme to appease creditor banks, which have shut-off Daewoo Motor Co. Ltd.’s life support system by refusing to grant the company any more credit, while demanding sweeping restructuring changes. The financially crippled Korean car company's vital signs have been failing rapidly over the last month:

• Creditor banks have forced all 135 of Daewoo Motor’s senior executives to submit their resignations.

• The two chief executive officers in charge of domestic and international operations have been fired and replaced by bank-appointed managers.

• The company’s 5,000 executive and administrative employees have not been paid for two months.

• Some 12,000 factory employees missed their paychecks in October.

• Domestic car and commercial vehicle plants lack sufficient funds for continued operations. Nor can they afford vital parts such as engines and transmissions and so are progressively ratcheting down production.

• Daewoo's prized Poland operations are undergoing layoffs and may suspend factory operations for three weeks.

• Overall company sales are falling.

The mortal blow came when Ford Motor Co. suddenly dropped its exclusive bid for the automaker in mid-September Creditor banks, which had continued to fund all Daewoo Motors operations, immediately shut off further support.

Even with the General Motors Corp./Fiat SpA alliance offering some hope as it begins a new round of due diligence, the creditor banks will not budge.

"They will not throw good money after bad and they cannot be blamed for taking this strong stance," an informed analyst says. Ironically, the banks are in as precarious a situation as Daewoo Motor. If they don’t show their best face in the months ahead, they likely will be dissolved by government order, or involuntarily merged with other banks.

Park Hae-Young, a Daewoo information specialist who tracks Daewoo Motor’s business activities, says the automaker already was beginning to strangle last month even before Ford pulled out.

With Ford seemingly ready to assume control of the company, she says, the creditor banks slacked off on extending credit as promised in late 1999, when they assured the government that they would provide the necessary funds to carry Daewoo Motor through the end of September.

Park says Daewoo Motor received credits of 457 billion won (US$402 million) through the end of May, just before Ford was appointed exclusive bidder. By the time Ford quit the deal, Park says the banks had advanced another W162 billion (US$142.5 million), for a total of W619 billion (US$5.4 million) — falling some W211 billion (US$186 million) short of the amounts promised.

This was devastating to Daewoo Motor, which currently needs W100 billion (US$88 million) a month to keep operating, says Daewoo Motor Manaaging Director Han Young-Chul. The funds would have kept the company viable.

There still is hope for a last-ditch infusion of funds. South Korean President Kim Dae-jung, critical of the creditors committee that handled the botched auction, is getting involved in the situation. He has directed his ministers to get the unique Korea Asset Management Co. (KAMCO) involved, with all possible speed.

KAMCO, unlike any institution in any other nation, is a subsidiary of government-owned Korea Development Bank, the automaker’s largest creditor. The busines of KAMCO is shucking Korean companies of their bad debt, so they can work themselves back into good financial standing.

Ostensibly, KAMCO can now step in and somehow provide enough funding to see Daewoo Motor through the end of the year — by which time GM/Fiat are expected to have made an offer and will have entered into final negotiations with the creditors.

However, the situation is so contorted that even officials at KAMCO are balking, stating publicly that the agency does not have funds available for the bailout. Nonetheless, with the very powerful Kim Dae-jung cracking the whip, knowledgeable analysts are sure KAMCO will do its assigned job. Also, critics say relief from KAMCO will keep Korea entrenched in a long-held government-bailout mentality that has hindered the nation from truly participating in a free-market economy.

A creditors’ committee, meanwhile, has taken over the mission of selling Daewoo Motor to a suitable investor, spearheaded by the Korea Development Bank. Han says that the written excutive resignations are "a gesture" made in lieu of the restructuring plan the creditor banks are demanding. Still, they are binding.

Daewoo Motor executives now can be fired, reassigned, or have their wages drastically cut (a moot point when they are going payless). "There will be some reshuffling, and we’re expecting quite a few to be laid off," Han says.

Two resignations accepted promptly were from Jung Ju-Ho, in charge of domestic operations, and Kim Shin-Jung, who oversaw international operations. The creditor banks immediately appointed as new chairman, Lee Jong-Dae, who had headed up Kia Motor Corp. at the time it was going through its financial crisis. Named president is Lee Young-Kuk, former managing director of Daewoo’s Pupyong production complex.

"The situation is absolutely depressing. It’s hard for me to face the day," says one management employee at Daewoo headquarters. "Our people are really suffering, and there is no sign that things will get better soon."

Even if everything goes smoothly between the GM/Fiat acquisition team and the creditor banks, insiders say they don’t see how the transition can take place before year’s end.

Hourly workers, meanwhile, are threatening to strike if the company tries to lay members off. The unions and management signed an agreement in July that there would be no worker layoffs for five years.

It’s doubtful that the unions will deviate from their hard-won contract, secured to prevent the very thing that the banks now want to happen. Daewoo’s Park, however, confirms that "the agreement includes nothing about pay cuts."

The lack of operating funds, meanwhile, is crippling daily operations. While suppliers are accepting Daewoo Motor’s worthless notes for most local parts, imported parts must be ordered using bank-guaranteed certificates.

Man-hours are being cut at the sprawling 5,000-employee Pupyong plant, which has reduced operations by 50% to a single shift. The Kunsan plant is operating at a level of 70% capacity, although the minicar plant in Changwong continues to operate at capacity, where most cars are built for export.

Additionally, poor sales and lack of parts have caused Daewoo Motor’s bus plant in Pusan to halt operations. Car plants can’t get certain vital parts like engines and transmissions used on selected models. Plus consumer confidence in Daewoo Motor’s service and parts availability is suffering, causing domestic sales to plummet.

While the purchaser of Daewoo Motor will acquire only assets and not liability, the new buyer will have to invest some W1.2 trillion (US$106 billion) per year to keep Daewoo Motor operating at its current unsatisfactory level.

When consideration is given to the huge amounts needed to revive the automaker, including boosting R&D operations, upgrading processes and initiating new product and marketing programs, that amount will be substantially increased.

It’s this very considerable drain on the new purchaser that worries industry analysts and is a major concern to GM’s board of directors in Detroit. For these reasons, GM and Fiat are proceeding with great caution. o