It's not Daewoo Motor Co.'s new bankruptcy status that bothers Managing Director Han Chung-chul, but his company's likely death unless creditor banks quickly provide some operating funds.

Mr. Han holds a key position in the company's strategic alliance office, which is trying to co-ordinate an orderly sale of its assets to an alliance of General Motors Corp. and Fiat Auto SpA.

Creditor banks declared the once proud No.2 Korean automaker officially bankrupt Nov. 8, after it missed paying off 87.5 billion won ($77.1 million) in maturing commercial paper two consecutive days.

Daewoo had presented a “self-rescue” plan, but the Korea Development Bank, the lead bank representing the creditors, balked when Daewoo failed to secure a written agreement from labor unions permitting the layoff of 3,500 workers. Blue collar workers, who have now experienced two months without pay — white collar workers are in their third month without checks, say they will come up with their own rescue proposal.

For the short term, the bankruptcy declaration won't hurt the company, Mr. Han contends. “Bankrupt or not, the company is still operating and we are still negotiating to sell our automotive assets to the General Motors and Fiat alliance,” he explains.

But without new cash infusions Daewoo may “soon go into a death spiral,” says another Daewoo official. It already forced Daewoo to close its largest assembly plant in Pupyong last Thursday, Nov. 9. And suppliers no longer are receiving money for parts, materials and services. “The suppliers are now in a position of actually giving away the parts they produce for Daewoo,” says one analyst.

The crisis also has triggered a 10-day closing at Holden Ltd.'s engine plant in Australia. Holden is supplying engines to Daewoo and is concerned about whether it will be paid. “Korea holds huge stocks of our engines, so we are exposed financially,” says a Holden spokesman.

A senior GM exec says that so far the situation isn't affecting talks. “We're still monitoring it, but we don't think it poses a major obstacle,” he says.

Korean economic analysts now believe that General Motors and Fiat only will offer about $3 billion for Daewoo Motor, and likely will extract special financing terms instead of making a massive cash outlay. This will have staggering impact on the creditor banks. They will have to put up vast amounts to counter their losses, which will be nearly twice as severe as they would have been had they accepted GM's $5 billion offer in November 1999.