On a gray Thursday afternoon, workers streamed through the factory gates of the Daewoo-FSO assembly plant to begin a three-day weekend.
Amid the drab buildings of Warsaw, Poland, the modern car plant stands out. After a $1.1 billion renovation by Daewoo Motor Co. Ltd., this former communist factory can produce 400,000 vehicles a year. But it does not.
This year, Daewoo's Warsaw factory is likely to produce 90,000 cars. After a sharp downturn in the Polish economy, the plant moved to a four-day workweek to limit its inventory of unsold cars. Worse, the bankrupt Korean automaker has cut off credit to its largest overseas plant. Unless investors are found, the plant may close.
It is a humiliating turn of events for an automaker that pursued a high-risk strategy to build assembly plants in some of the world's poorest regions. In the 1990s, Daewoo built plants in Romania, Czech Republic, Uzbekistan, Ukraine, India, Libya, Vietnam, China and Egypt.
According to internal documents seen by Automotive News International, Daewoo has made a go-it-alone plan for its overseas plants. The document says each factory must launch a 'self rescue' plan. 'If the overseas plants are not viable, they will be sold or liquidated,' the document states. Foreign operations are instructed to 'seek investment partners.' Daewoo's worldwide cost-cutting plan calls for savings of 997 billion won, or $789 million this year. This includes a 5 percent reduction in purchasing costs, a 10 percent reduction in operating costs, and a 41 percent reduction in research and development. The company plans to eliminate 6,880 jobs, more than one-third of its labor force.
To ease its cash-flow crisis, Daewoo claims it has secured loans of $57 million. With the loans, layoffs and lower costs, the company believes it can survive. Although he will not comment on the document, Lee Joon, executive director of Daewoo's Western European division, tells Automotive News International: 'We have a restructuring plan, which is based on our own survival without a takeover by General Motors.'
But the rescue plans offer little hope to Daewoo's overseas workers. Automakers are not likely to engage in a bidding war to purchase assembly plants in such places as Libya, Iran or Vietnam. Even Poland, which has been one of the fastest-growing former Soviet Bloc countries, is having economic problems.
Plant was a centerpiece
The mood in Warsaw is understandably downcast. Just five years ago, the former FSO plant was the centerpiece of Daewoo Chairman Kim Woo-Choong's ambitious plan to boost world production to 2 million units. Characteristically, the Korean executive chose to buy an aging, badly run factory, then turn it around.
Daewoo installed a paint shop, a body shop, a stamping plant and an assembly line for the Matiz. Daewoo also renovated FSO's plant in Lublin, which makes commercial trucks. The automaker formed joint ventures with local suppliers to produce wire harnesses, seats, transmissions, bumpers and other components. Those 15 joint ventures employ 6,500 workers.
Originally, General Motors planned to buy the state-owned FSO plant. Kim outmaneuvered his American rival by promising no layoffs for at least three years. In return, Daewoo received tax breaks and other concessions. Now the plant is laying off 1,294 workers, one-third of its payroll.
Now, General Motors may end up as the plant's owner after all. But if the automaker finally buys Daewoo Motor, the Warsaw plant's problems may only increase. The General Motors-Fiat alliance has a strong presence in Poland. Another plant would give it monopoly status. The Polish government will have something to say about a takeover. The government and Daewoo employees own 13.4 percent of the plant. Poland hopes to enter the European Union within the next four years. If regulators in Brussels question the propriety of a GM monopoly, the Polish government may block the sale.
Displeased with Daewoo's planned layoffs, the Polish government has threatened to take over the Warsaw plant if it halts operations.
'Daewoo has failed to carry out its promises,' one finance ministry official says. 'If the situation worsens further, we'll ask for compensation.' And that compensation, the official adds, would be the plant.
But auto executives question the government's resolve. Poland's politicians have staked the country's economic future on privatization. They are unlikely to reverse that trend, says Maciej Motelski, Daewoo-FSO's managing director of production.
'I don't see the government stepping in and taking over the factory,' Motelski says. 'The government has had a privatization program running for the past 10 years. To take over the plant would be a step backwards.'
Daewoo's Warsaw plant produces the Matiz, Nubira and Lanos vehicles, plus the Polonez, a car based on a 20-year-old Fiat. Although heavily re-engineered, the aging Polonez is a relic bought in small numbers by farmers. By contrast, the Matiz has won favor among price-conscious Polish consumers.
But Poland is going through a recession. Last year, sales of new cars and pickups in Poland declined 35 percent. Fiat - the country's top-selling brand - and Opel also have suffered. Rising fuel prices and taxes have strapped consumers. Meanwhile, an influx of cheap used cars from Western Europe has undercut new-car sales. In 1999, used-car imports topped 200,000 units.
Things may get worse. February auto sales declined another 20 percent, compared with the same period a year earlier. 'People are getting poorer,' says Daewoo spokeswomen Krystyna Danilczyk. 'They cannot afford new cars.' This is bad news for a plant that must produce 120,000 cars a year to break even.
Given Daewoo's crisis and Poland's struggling economy, Danilczyk says the factory must find a buyer. 'We have a modern car plant with full assembly facilities, research and development capability and a highly educated work force. We have proved we can be profitable. And we can still pay our workers and suppliers.'
Other possible investors
If General Motors does not buy the plant, who else might invest? One rumored partner is Volkswagen AG, which might want to buy the Lublin truck plant. 'I could not comment on that,' Danilczyk responds. Workers seem fatalistic about the plant's shaky prospects. The company is offering those workers compensation ranging from four to 15 months' wages. Daewoo has not agreed on terms of the layoff with the plant's four unions. 'We do not like it, but what can we do?' asks one union official. 'We have to protect as many jobs as we can, and look after those who are being laid off.'
Interestingly, he does not blame Daewoo for the problems. 'They have invested a lot of money here,' he says. 'Of course their problems have not helped. But neither has the economic situation in Poland.'
The average assembly line worker earns $300 a month. But with unemployment at 15 percent, few jobs are available outside the plant. Tomas has worked at the plant for 25 years, stretching back to the days when the plant operated under communist rule. He is philosophical about Daewoo's troubles, noting the company's heavy investment in the plant.
'People are a little nervous about talking,' says Tomas, who asks not to use his full name. Because of the lack of jobs outside the plant gates, Tomas does not sound inclined to strike.
'They are going to fire more than 1,000 of us, but we don't know who yet,' he says. 'It's best to keep a low profile.'
E-mail International Editor Chris Wright at [email protected]