By ELIZABETH WILLIAMSON
Staff Reporter of THE WALL STREET JOURNAL
WARSAW -- Daewoo's plans to idle 1,200 workers at its Poland truck
plant drives home the extent of the South Korean conglomerate's
troubles in its European hub.
News of the layoffs, beginning in January at Daewoo's truck plant in the
city of Lublin, jolted Warsaw. Previously, workers say the government
stuck to a wait-and-see approach, even as Daewoo began to fall behind
on its $1.1 billion (1.29 billion euro) investment plan for Daewoo FSO,
its auto plant here.
Deputy finance minister Rafal Zagorny on Monday said that a
government delegation will fly to Seoul next month, demanding answers
from one of Poland's biggest foreign investors.
"We want guarantees that Daewoo's plans will be realized," Mr. Zagorny
told local media.
Daewoo guarantees little these days. Even its existence looks shaky, as
new operating troubles in Seoul further weaken it in negotiations with
General Motors Corp. and Fiat SpA over the possible sale of its auto
A joint venture with the Polish government, Daewoo FSO encompasses
two sprawling plants in Warsaw and Lublin and a string of components
factories. It employs 16,000 in this nation of 39 million.
But nearly $400 million of Daewoo's promised $1.1 billion investment in
FSO never arrived. After a year of uncertainty, market share in Poland --
Daewoo's biggest European market -- is shrinking. Worker morale is
falling even faster, as Daewoo FSO, despite humming assembly lines,
hangs in limbo.
"For the people working here, who owns the factory is not important.
What is important is having jobs, salaries and work that makes sense,"
says Jerzy Wozniak, who heads the auto plant's Solidarity trade union.
It's been a tough year at Daewoo FSO. Battered by uncertainty, the
subsidiary reported a loss of 28.5 million zlotys ($6.1 million or 7.2
million euros) for 1999, despite having predicted a profit of nine million
zlotys. The true picture, analysts suspect, is far worse. Sales fell more
than 30% in the first quarter of 2000, and market share has been
shrinking steadily, from a high of 28%. Hopes at the plant rose when
Ford Motor Co.'s due-diligence team seemed impressed by the
operation, then fell again when talks ended in September.
"Many months ago we told the Treasury Ministry to get interested in the
situation at Daewoo," says Mr. Wozniak. "We proposed setting up a
commission monitoring dangers [to Daewoo] which could influence our
factory. But all our proposals vanish in the ministry and we don't get
As Daewoo's crisis deepened, official Poland remained surprisingly
sanguine. The Chamber of Supreme Control watchdog organization,
which is known as NIK, hasn't examined Daewoo's Polish investment
since 1997, a spokesman said. The treasury, which privatized FSO and
still owns 10%, has kept largely silent. Repeated requests for an
interview or statement from the Treasury about Daewoo's operations
were unsuccessful. Treasury representatives will meet about the issue
on Oct. 26, a ministry spokesperson said. A finance ministry official,
asking not to be identified, said the visit to Seoul is scheduled for early
November. The official added that the finance ministry had not been
involved in Daewoo FSO's plight before this week.
A potential GM/Fiat deal makes Polish workers nervous. Fiat passed up a
treasury invitation to buy the former state auto plant when went on the
block in the mid 1990s; GM lost out to Daewoo. Both went on to open
big, efficient Polish operations whose models now eat into Daewoo's
market share. Indeed, last week Fiat CEO Roberto Testore was quoted
as saying that Poland could present the Italian company with "antitrust
problems." Analysts say the two auto makers are likely pick and choose
from among Daewoo's passenger vehicle assets and related businesses.
GM and Fiat are conducting preliminary due diligence, which may or may
not result in an agreement with Daewoo on a possible sale, said John
Mueller, director of international communications at GM headquarters in
Detroit. The U.S. company was still working on a 1998 strategic alliance
agreement with Daewoo when the Korean company's debt troubles
made headlines in August of 1999, and has maintained its interest in
the company since then.
Mr. Mueller added, "We regret that Daewoo has lost valuable time while
the condition of the company continued to deteriorate."
It wasn't always this way. By 1996, the collapse of its traditional East
Bloc markets had put FSO, one of Poland's largest auto plants, at
death's door. Then Woo Choong Kim, Daewoo's former chairman,
landed in Warsaw, promising $1.1 billion in investment, massive
restructuring, a flood of new models, employment for 1,000 Polish
engineers in a planned design think tank. Mr. Kim agreed not to cut
jobs at FSO for three years. Beyond that, Daewoo would roll out a host
of other new businesses, employing thousands more.
He repeated the $1 billion pledge in emerging markets from Romania to
India. In Poland, initially at least, the promise was kept.
FSO showed new spark almost immediately. Daewoo refurbished
assembly lines and a welding plant, and built a new painting facility.
Daewoo FSO began cranking out sub-compact Tico and Matiz models, in
addition to FSO's homegrown Polonez. Sales skyrocketed, and by the
end of 1998 Daewoo's Tico, Lanos and Nubira models were the
best-selling cars in Poland, a seemingly insatiable market where total
new car sales peaked at 640,000 in 1999.
That initial success allowed Daewoo FSO, and Warsaw, to overlook
other problems. Because Mr. Kim promised not to lay off workers for
three years, Daewoo FSO's work force remains bloated, requiring more
than double the number of workers to make the same number of cars
as do Western auto makers' operations, say some analysts.
After August 1999, when Daewoo's financial troubles became public,
several projects went on hold. The 1,000 engineers were never hired. A
new $150 million T-4 engine plant has had its opening moved forward
again, to the first quarter of 2001. The 1- and 1.2-liter engines are the
key to plans for an entirely Polish-built car, which critical to Daewoo's
ability to compete in Europe. By 2002, aiming toward European Union
membership, Poland will impose heavy tariffs on parts imported from
non-EU countries. Last year, sales began to shrink, and demand for
new cars in Poland peaked.
When FSO's three-year employee-retention agreement expired last
year, Daewoo was too preoccupied with its own fate to embark on any
meaningful restructuring. Mr. Wozniak says that of the 769 people
leaving Daewoo this year, 346 quit on their own. The Lublin truck plant
layoffs seem to be a response to slumping sales, and the fact that
Daewoo scrambles simply to pay salaries.
Daewoo FSO president Choon Sik Yoo declined a request to be
interviewed for this article, as did Sun Joo Lee, Daewoo FSO's planning
Workers grow steadily disillusioned with the once-dynamic partnership.
This year, Mr. Lee had his work permit held up for three months in a
bureaucratic snarl that people in the plant say is related to worker
grievances. Even the South Korean chef in the Daewoo FSO cafeteria
has had his papers delayed.
With Daewoo stumbling and its creditors pressing for a solution, host
country governments could offer guidance to GM and Fiat as they
evaluate the far-flung assets of a conglomerate with no consolidated
"We know Daewoo tended to adopt a 'when in Rome' attitude in these
countries," says a person close to the two companies' plans. "The
problem is you need to understand what it is to be a Roman in
Uzbekistan, Romania or Poland."
Either way, the truck plant layoff reminds Poland that it loses bargaining
power by the day.
Says a person inside the plant, "This is personally so disappointing.
Even though this is a good and capable company, it has no influence on
the larger situation."
Write to Elizabeth Williamson at firstname.lastname@example.org