Labor clashes threaten GM's Daewoo bid

By CNN's Alex Frew McMillan in Hong Kong

SEOUL, South Korea -- Continued protests by Daewoo Motor unions would threaten a General Motors bid for the company, auto experts say.

Around 400 demonstrators pelted the Korean headquarters of General Motors with eggs over the weekend.

The demonstrators, from the Korea Metal Workers Federation (KMWF), which includes Daewoo's union, shouted their opposition to GM's bid for Korea's No. 3 car company.

A delegation of five union members from the KMWF and the Daewoo union is now in the United States. The Detroit-based United Auto Workers union sponsored the trip.

The delegation plans to demonstrate at GM's Detroit headquarters later on Monday, joined by American counterparts. They also promise to protest at a GM shareholders' meeting on Tuesday.

Polls show most Koreans support GM's interest in turning Daewoo around. Most Daewoo workers also favor the bid.

But continued opposition to the American automaker's participation spells trouble when GM is negotiating how much of Daewoo it is willing to take on, and at what price.

"It is a serious event. And if they happen to get a lot of public attention through the press … it would definitely affect GM's position," said Namuh Rhee, chief analyst at Samsung Securities. "The government is very, very worried about it."

KDB keen to strike a deal

Daewoo's main creditor, state-run Korea Development Bank, is keen to strike a deal for the company. Daewoo entered receivership last November with $15 billion in debts. The government has since spent $2 billion propping up the company.

GM entered an initial bid for Daewoo last Wednesday. GM representatives from Japan and Singapore are now locked in talks with KDB and Daewoo's other creditors, at an undisclosed location, thought to be Hong Kong.

The KDB said on Thursday that GM could reach a preliminary agreement to buy Daewoo in two to three weeks.

This weekend's protests did not affect production at Daewoo. But a GM spokesman said that ongoing labor trouble could affect GM's bid.

"It is a concern. It's becoming a serious concern now that negotiations have begun," Ken Hong, GM spokesman in Korea, said. "But we don't feel that blame is being focused in the right place. GM is doing their best to keep Daewoo alive. GM is not the one who put Daewoo in the situation they are in now."

GM keen to break into market

Analysts say GM is very keen to break into the Korean car market, the second-largest market in Asia. It is essentially closed to outside companies, with imports accounting for only 1 percent of sales.

Daewoo is GM's only entry point. No. 1 Hyundai dominates the market and controls No. 2 Kia, and is partly owned by DaimlerChrysler.

GM has been readying its offer since Ford pulled out of a deal to buy Daewoo last September. Analysts say the longer talks drag on, the more Daewoo's business deteriorates.

Prior labor disputes caused GM to pull out of a 50 percent stake in Daewoo in 1992, returning it for $170 million. So renewed troubles could put the company off again.

"The major reason they got out was because of labor disputes," said Sung-moon Suh, auto analyst with ING Barings. "If this kind of demonstration becomes more and more severe, it will affect the price negatively."

GM is not keen to take on all of Daewoo's debts. It is negotiating whether it will take on Daewoo's plant in Bupyong, which was built in 1972.

The company is expected to bid $1 billion to $2 billion. But it will likely require concessions to take on Bupyong and still wants to cut Daewoo's work force.

"GM needs to pump in quite a bit of money to upgrade and modernize the facilities," Rhee said. "But at the same time they would like to squeeze as much as possible."

Further clashes likely

That makes further confrontations with workers likely. Union members have insisted that the Korean government should retain control of the company.

There were violent demonstrations in February after its court-appointed management laid off one-third of the company's 16,000 workers, to make it more attractive to an outside buyer.

This weekend, the union promised to make it impossible for GM to sell cars in Korea. "We will show our strong will through force," a demonstrator said.

Around 10,000 members of the militant Korean Federation of Trade Unions also clashed with police during a rally in Seoul. They were protesting a broader issue, the pace of reforms initiated by Kim Dae-jung's government.

The federation, which includes the KMWF, is planning a nationwide strike on June 12 to put further pressure on the government to stop restructuring.

Rhee at Samsung Securities said most Daewoo workers want to see GM turn the company around. But the militant union elements could still cause enough trouble to block the bid.

GM's stock has not yet taken a hit. But if it does, "that would be the single thing GM's management and board would be afraid about," he said.

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