Making Cars by Making Nice

On April 30, General Motors Corp. Chairman John Smith stood on a stage in the posh ballroom of the Seoul Hilton Hotel, waiting to announce a long-sought deal to acquire South Korea's bankrupt Daewoo Motor Co. GM, the biggest automaker in the world, planned to celebrate in style: a signing ceremony with 150 guests, a screening of a specially made video called Infinite Possibilities, and a champagne reception for such dignitaries as the U.S. ambassador to Korea. But before the festivities could begin, the doors to the ballroom burst open and in rushed 70 angry members of the Daewoo salesmen's union. The militants, wearing red bandannas around their heads, overpowered security guards and began singing protest songs. Smith, guards by his side, was forced to beat an inglorious retreat through a trap door hidden in the ballroom floor behind the stage. The deal was signed unceremoniously later that day in a small room in a nearby government bank building.

Corporate luminaries like Smith are not accustomed to having their parties gate-crashed by irate hecklers. But in South Korea, the incident was just one of many nose thumbings and eye gougings GM has endured on its way to acquiring South Korea's third largest automaker. After nearly three years of courting Daewoo, GM and its partners—including Suzuki Motor Corp. of Japan—agreed to pay $400 million in cash for a majority stake in the broken-down carmaker. GM's gamble is that it can radically rebuild the busted company, transforming it into a low-cost producer of cheap cars not just for Korea but for export to places like Latin America and China. The overhaul is already quietly under way, and the company is scheduled to be formally relaunched in October under a new name, GM Daewoo Auto & Technology.

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GM officials are trying to ease the adversarial relationship lest their planned turnaround be torpedoed by strikes and other industrial actions. The task has fallen to Lawrence Zahner, 48, an affable, fast-talking Baltimore native who in the early 1970s painted cars at a GM plant at night to help pay his way through college. As GM's vice president for manufacturing in Korea, Zahner has spent his first year on the job trying to use a mix of down-home American good humor and hard bargaining to get the workers' union on board. "My point to them is that we have to be competitive to survive in the industry," Zahner says. "We need to talk about how to make the company strong to provide jobs for not just them and their sons but their grandchildren."

From the start, Zahner's friendly advances met resistance. Last October, soon after he was given responsibility for Daewoo labor relations, Zahner popped in unannounced on union leaders in their spartan office at the Bupyeong plant. He went worker to worker, shaking hands, introducing himself and passing out business cards. "I've been wanting to meet you," he said to Choi Jong Hak, the union spokesman at the time. Choi retorted, "I haven't been wanting to meet you." The union is still burned up over Daewoo's decision to lay off 1,750 workers last year. Leaders blame GM for the redundancies, though the company says it did not demand the staff cuts and promised to hire 300 workers back.

Ornery employees are not the only problem GM must confront in the coming months. Since 1998, Daewoo's market share in Korea has tumbled from nearly 30% to under 12%. Its factories run at about half their capacity. In late August, the plants were shut entirely when a major supplier stopped shipping parts after Daewoo failed to pay for previous orders. GM expects Daewoo will need three years to get its production up to the point where it can break even.

To get the factories humming again, GM aims to reclaim lost market share in Korea with fresh models, including the launch of a new sedan this year and, down the road, a sport-utility vehicle and a minivan. It is all part of the U.S. giant's grand plan to boost its sales in the fast-growing Asian market. "GM Daewoo will be the biggest piece of our business in the region," says Nick Reilly, the incoming chief executive of the new GM Daewoo unit.

If GM succeeds, the impact could be felt beyond the bottom line—it might even help to ease the antipathy South Koreans traditionally feel toward outsiders involved in their industrial sector. Although the country has opened up to more foreign investment and brands since the 1997 Asian economic crisis, the auto business has remained devoutly nationalistic—only 1% of the cars sold each year are foreign makes. A GM turnaround could change that, in the same way that Renault's transformation of Nissan showed Japan that foreign partnerships can work.

Daewoo's factory workers may finally be coming to the realization that having American managers is better than having no jobs at all. The union has ceded ground to Zahner on key issues, such as its collective bargaining agreement. Under the old agreement, there was a five-year moratorium on layoffs and a clause granting the union the right to determine which cars were made in which plants. GM refused to acquire Daewoo until the agreement was altered to eliminate such un-American hindrances. In the end, the Detroit automaker bought two plants in Korea and one in Vietnam; it said it would acquire Daewoo's third Korean factory at Bupyeong, but only if it met higher production standards.

Zahner opened negotiations with the union last October and quickly tried to chummy up to its leadership to strike a deal. Zahner, who doesn't speak Korean, would show up early for negotiating sessions so he could smoke with the unionists and try to communicate with hand gestures. Kang In Hee, secretary-general of the union, reciprocated. At one meeting, Zahner asked about the red bandannas worn by all labor activists in Korea. Knowing Zahner's interest in the bandannas, Kang brought an extra one, and presented it to him as a gift. Zahner saw that moment as a breakthrough in the talks. He says the bandanna will be "a treasure that I'll keep the whole time I'm in the industry." It took six months, but in late April, the union consented to changing the agreement—the no-layoff clause was dropped and the acquisition moved forward. Lee Beom Yeon, the union's executive director of policy and planning, calls the new agreement "unfair" but says the union had little choice but to concede. "Right now, the reality is that we have no alternative," he says.

Ordinary workers, too, appear to be getting used to the idea of GM being around. "Initially everyone wanted Daewoo to revive itself," says Kang Kyung Soo, a member of the Daewoo worker-safety team and a 13-year veteran. "But now since it is inevitable that GM is taking over, the consensus among the workers is: we hope GM will make things better." Some union members even confess they find Zahner much more open than the usual authoritarian Korean managers, and that the workers are becoming more and more pro-GM. Kang, the secretary-general, says he has a "good image" of Zahner. "I give him credit for actively working toward company and union relations," he says.

The union, though, remains profoundly suspicious of GM's intentions. In May, just after the deal was signed, Zahner held a seminar at the Bupyeong plant for about 100 unionists to describe GM's vision of Daewoo's future, stressing the need for Daewoo to be part of a global company. One leader, Cho Ha Soo, began grilling Zahner. Cho called GM's acquisition "stealing," and demanded that the company clarify its position on layoffs. He accused Zahner of evading his questions. After the tense exchange, Zahner singled out Cho and said, "Starting today, we're going to be friends," and later wished Cho a happy birthday. But they're still not buddies, says Cho. "He hasn't called me since," he says.