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UPDATE 1-Daewoo plants shut, more suppliers to join boycott

(Adds analyst comments, details)

By Kim Myong-hwan

SEOUL, Aug 29 (Reuters) - South Korea's third-largest automaker, Daewoo Motor Co, was shut for a second day on Thursday as a boycott by a major parts supplier looked set to widen to a group of firms jointly owed $700 million in unpaid bills.

The dispute with suppliers comes as General Motors Corp prepares to launch a revived Daewoo under a joint venture later this year, with industry observers saying the row is too knotty for an early solution.

On Thursday, all of Daewoo's four plants in South Korea were closed, Daewoo spokesman Kim Sung-soo told Reuters.

"We are trying to end the dispute," Kim said. "We are in talks with creditors about shortening our payment period for suppliers."

Suppliers have demanded bills be paid within two weeks of deliveries versus the current four to five weeks.

A compromise on the issue would be offered to suppliers before they meet on Friday at 10:00 a.m. (0100 GMT) to decide their next move, Kim said.

A wider boycott looms as some 191 suppliers plan to discuss cutting off supplies in line with a move taken by top supplier Korea Delphi Automotive Systems on Wednesday.

Daewoo's parts suppliers also suspended supply last December, but that lasted less than a day after the automaker sought their cooperation.

FULL PAYMENT

Some $700 million in unpaid bills is the main problem to be resolved, an official at Daewoo's main lender, state-run Korea Development Bank, told Reuters.

Suppliers want full payment, while creditors that have spent over $2 billion to keep Daewoo afloat since 1999 want the companies to share the burden by reducing their claims in half.

"Parts suppliers want 850 billion won in arrears paid in cash," KDB official Yoo Hee-kyung told Reuters.

"Creditors want the suppliers to reduce that to around 420 billion won level."

Korea Delphi, a joint venture between U.S. auto parts maker Delphi Corp and former Daewoo units, is owed more than 200 billion won, a company official told Reuters.

"It is a big headache because there is no obvious party to sort out the problems," said Song Sang-hoon, analyst at Dongwon Economic Research Institute. "New owner GM has its hands off and it will take a long time for a court to sort out the issue.

Suppliers would not accept creditors' suggestion of burden sharing because of their weak financial structure, analysts said.

"Many of the suppliers will go under if they forgo half of the unpaid bills," said Song of Dongwon.

The automaker entered court receivership in November 2000 after creditors failed to sell the company to a foreign investor via open tenders.

Shares in marketing unit Daewoo Motor Sales fell 2.3 percent to 8,600 won on Thursday, underperforming the Korea Composite Stock Price Index which rose 0.12 percent.

Daewoo estimated the plant closures meant lost output worth 15 billion won ($12.5 million) a day, or around 2,000 automobiles.

The Daewoo spokesman said it had enough vehicles in inventory to last up to three weeks though supplies of its Rezzo minivan, sold as the Tacuma in the U.S. market, had almost run out.