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Old 02-22-2007, 02:43 PM   #1
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Default Daewoo: GM's Korean Success Story

Daewoo: GM's Korean Success Story


The takeover of the once-bankrupt automaker is paying off for General Motors, but continued growth is vital in the face of GM's falling U.S. share

Will General Motors (GM) benefit from purchasing a struggling Chrysler from DaimlerChrysler (DCX)? That question hasn't been answered yet. But in South Korea, GM executives have shown how to make an acquisition of a money-losing operation work.

GM took over bankrupt Daewoo Auto & Technology, Korea's second-largest automaker, in 2002. Since then, GM Daewoo has almost quadrupled its sales. The division has turned into the black ahead of schedule by at least a year. It also hired back workers Daewoo had laid off before GM's arrival, and has become a key driver of growth for the American giant in critical markets like China and Europe.

An important turning point for GM Daewoo occured in the tough domestic market last year. The company is still No. 3 in Korea, behind market leader Hyundai and No. 2 Kia. But by rolling out its first sport-utility vehicle and launching a new diesel engine plant, it became the only Korea-based automaker to increase market share on its home turf, which remained flat at 1.15 million vehicles. GM Daewoo's share last year grew 1.5 percentage points to 11%; as recently as 2000, the carmaker's domestic share had peaked at 16.8%. "We did have a terrific success in Korea last year," says Rick Labelle, vice-president in charge of global sales and marketing.

Regaining Daewoo's reputation at home required new products because the image of the old lineup was badly damaged by Daewoo's bankruptcy. GM Daewoo last year delivered two new vehicles—the compact Winstorm SUV and the Tosca midsize sedan sporting an L6 engine—which were developed with the help of GM's engineering expertise. The two new models represented 42% of all GM Daewoo sales in Korea last year.

Increase in Exports
To underscore the renewed commitment to quality in these vehicles, GM Daewoo let unsatisfied buyers return their cars for a full refund during the first month of ownership or if the cars had less than 1,500 kilometers on them. Moreover, the Tosca was the first Korean-made sedan with a six-cylinder engine and five-gear automatic transmission in the 2.0-liter sedan class, the most popular segment in Korea. The Tosca also is about $400 cheaper than its main rival, the Hyundai Sonata. The Winstorm, meanwhile, was the first compact SUV with the "active-on-demand" feature that automatically shifts into four-wheel-drive mode when road conditions get slippery.

A much bigger achievement, however, came from exports. Shipments of vehicles abroad, including those exported in the form of knocked-down kits that were assembled overseas, jumped 33% to 1.4 million units. The vehicles go to 150 countries, with China, Europe, and North America serving as the biggest markets. Together with sales in Korea of 128,300 units, GM Daewoo's overall sales of 1.53 million accounted for some 15% of GM's global production in 2006, up from about 10% a year earlier.

That means the Korean division has played an important role in GM's ongoing battle against Toyota to keep bragging rights as the worldwide No. 1 automaker. "The acquisition of Daewoo Motor was probably the most important strategic decision GM made in recent years," says Stephen Ahn, auto analyst at Woori Investment & Securities in Seoul. "Without the 1.5 million-plus vehicles, GM would have been overtaken by Toyota last year."

Korean Advantages
GM executives acknowledge that the Korean unit was crucial in the introduction of the Chevrolet brand in Europe, China, and elsewhere. GM Daewoo produced all of the 280,000 Chevrolet cars sold in Europe last year, and the Korean company also shipped 312,400 vehicles to China in the form of kits in 2006. "Significant parts of growth in Latin America and the Middle East also came from GM Daewoo," says Nick Reilly, GM president heading the Asia-Pacific region. "Certainly, GM Daewoo has been an important contributor to the globalization of Chevrolet."

Now, GM plans to boost Chevrolet sales in Europe by taking advantage of the Korean unit's diesel engines and the new SUV. "The diesel engine takes us to a whole new realm of opportunity given how popular diesels are in Europe," says Labelle. In the spring, GM plans to launch the diesel-powered Lacetti compact in Europe, where the Chevrolet brand wants to increase sales to 300,000 this year.

In addition, the U.S. giant is tapping its global networks to harness some GM Daewoo products under various badges in the GM family. For instance, the Winstorm SUV, which has been sold as the Chevy Captiva, has been adjusted by German engineers to cater to Opel clients. In the first quarter of this year, the tweaked sport-ute will be offered as the Opel Antara in Europe. It is also being sold as the Holden Captiva in Australia. "We had a great success in the Korean market with the SUV and we anticipate a similar success in Europe," says Labelle.

Small Cars Vital
The most important role the Korean unit is playing in GM is in the small-car segment, particularly in emerging markets. Many first-time buyers look for low-priced cars in such countries as China, India, and Russia, as well as in Latin America, and GM Daewoo is now responsible for developing new-generation mini and small cars for all GM brands. "The biggest difference between GM and Ford (F) is GM's strength in small cars and that forte comes from GM Daewoo," says Woori's Ahn.

Reilly figures there are about 19 million mini, small, and intermediate cars, representing 29% of the world's total vehicle market of 65 million units. By 2011, GM expects the segments to rise to a combined 28 million, accounting for 35% of the global total of some 80 million vehicles. Of the 28 million, GM execs believe cars costing some $9,000 or less will represent more than 50% in four years, from around 40% in those categories now. GM Daewoo's small and mini cars (marketed mostly as the Chevrolet Aveo and Spark) cost around $9,000 or less and a few hundred dollars cheaper than rivals from Hyundai and Toyota.

A continued growth in lower-end segments is vital for GM in the face of wrenching restructuring that has led to a declining share in the U.S. High oil prices and greater environmental awareness also increase demand for fuel-efficient smaller cars, even in mature markets (see BusinessWeek.com, 10/26/06, "GM's Baby Step to Recovery").

Future Challenges
So far, the Korean unit has proven to be a relatively low-cost engineering source for GM's small cars. Reilly points out that Korean engineers, who are working with experts flown in from abroad, have managed to cut about 25% of development costs per program by combining testing and engineering work to reduce the number of expensive prototypes. They also slashed costs for making the prototypes. "Even today, it is very difficult to make money from making small cars, but carmakers will have to live with a trend of lower costs," Reilly says.

The big challenge is increasing labor costs coupled with the recent appreciation of the Korean currency. With the won strengthening against the dollar by 25% over the last three years, Korea is beginning to lose competitiveness as a manufacturing base. China, India, Poland and Romania all loom large as new low-cost assembly sites, and unless Korea gets a handle in controlling costs, it may not be able to produce newly developed GM models any more, according to GM execs.

For the short-term, however, GM Daewoo appears poised to have another bumper year. It expects this year's sales to reach between 1.7 million and 1.8 million vehicles, up by as much as 18%, and targets a profit exceeding the $70 million recorded in 2005. (GM officials say Daewoo's profit rose in 2006, but figures won't be compiled until spring.) "We are pleased but we are not satisfied because we know there is so much more we can do," says Labelle.
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Old 02-22-2007, 03:25 PM   #2
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and yet on home turf...

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Old 02-22-2007, 03:32 PM   #3
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I just like how all Daewoos in Europe have been rebadged as Chevrolets *puke*

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Old 02-22-2007, 05:22 PM   #4
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The chevy Aveo is a Daiwoo too. It predictably patrols the lower border of its category.
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Old 02-22-2007, 06:36 PM   #5
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Wait! So you mean that GM INVESTED into Daewoo and introduced new technology and much improved cars?!?

WOW! Who would ever have thought that good products would improve your sales?!?

Can someone tell me where GM is going to find the money to turn Chrysler around when they barely have enough money to turn themselves around.
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