Suppliers of parts to Daewoo Motors have rejected an offer to end a boycott that has shut down South Korea's third largest automaker for three days - and they are unlikely to resume deliveries before new discussions kick of on September 4. The main problem is not so much the time frame for Daewoo to pay its outstanding bills of $700 million, but how much it will pay back.

General Motors has stated that it still plans to go ahead with its joint venture to revive bankrupt Korean carmaker Daewoo in September, despite Daewoo's disputes with its parts suppliers over the $700 million it owes in unpaid bills.

Daewoo Motors experienced its third day of closure today (Fri Aug 30) after part makers dismissed an offer from the automaker's creditors. Representatives from 190 suppliers stated that there is another round of meetings on Wednesday, when a revised offer will be discussed. Although suppliers want an early closure to this mounting problem, they stated that the boycott would almost certainly continue until September 4, as approval is needed from all member companies.

Creditors of Daewoo recently extended the payment period to suppliers from two weeks to between four and five weeks. They have also offered to resume payments within two weeks and provide about $50.12 million in emergency loans. Although this is an attractive offer, Um Ki-wha, chairman of the suppliers' meeting and president of Dongyang Mechatronics says it is still not good enough to end the boycott.

The main problem is not the time frame in which to pay the money owed, but how much money the company wants to pay back. While suppliers want full payment of the $700 million in outstanding bills, creditors want the suppliers to take some of the burden by halving their claims.

An early solution seems very unlikely, as there is no obvious mediator and it will take a long time to resolve the dispute in court. The suppliers are not prepared to accept the creditors' suggestion of burden sharing due to their weak financial structure.

Whatever the outcome of this current dispute, Daewoo will still be in a relatively complicated position. Years of under investment and overspending means that problems like these are likely to arise again. The challenge for GM will be how to reduce these debts and repair the damaged relationships with Daewoo's suppliers.

SOURCE: DATAMONITOR COMMENTWIRE

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