GM Deal Heralds New Dawn For Daewoo

Chris Wright

Interchange News Agency

After years of staring bankruptcy in the face, followed by protracted take-over talks with a number of the world’s leading car companies, the Daewoo brand is on the move again – under new management.

A deal signed with US giant General Motors at the end of April was finalised today and the new GM Daewoo Auto and Technology Co is up and running, selling the South Korean cars around the world. The new UK company, GM Daewoo UK although also operational from today, will have its coming out party at next week’s British International Motor Show in Birmingham.

The President of GM-DAT is Nick Reilly, a Brit, of course, who until the middle of last year was running Vauxhall Motors. He will be too busy with settling down the new organisation to attend in Birmingham but since last December Reilly has been heading up the negotiating team which has finalised the deal to buy large parts of the Korean car company. It had to be financially untangled from the giant Daewoo Chaebol – or conglomerate – which also produces just about everything from shirts to ships in its home country.

Under the deal, GM-DAT has bought much of the car-making business in Korea, but not all of the overseas operations. The distributors in the UK and USA were notable omissions, but there are plans to rebuild the brand in both those markets. The new company will also take the Daewoo brand into markets where it is not currently represented but Reilly said he did not expect Daewoo to change its market position greatly although it may be targeted at a younger age group representing value for money along with good styling. He said that in the UK a new company, GM Daewoo UK, plans to maintain the Daewoo brand and continue to sell there.

Reilly said: "Daewoo has concentrated on customer care and value for money - not necessarily cheap, but inexpensive for what you get. Korean engineers are very good at producing low cost but well engineered products. Matiz has been a great example of this, defining the segment, and we have to build on that. We want to continue to be innovative in the same way as the company did with Matiz - not just 'me too' products, but vehicles which have real innovation."

GM-DAT acquired European sales subsidiaries in Austria, Benelux, France, Germany, Italy, Spain and Switzerland plus the parts operation in the Netherlands.

Reilly said these would be run from the Company’s newly established European Operation which he added would probably be headquartered in Zurich to make the best uses of the synergies with GM Europe and to leverage existing distribution operations around the countries.

GM-DAT says GM Daewoo UK will be operational straight away. The new company said it will honour all warranties in the UK as the brand moves to a more traditional dealer network. Daewoo originally sold direct to consumers from its own sites and used high street fast-fit and accessory chain Halfords to carry out servicing.

Priority for the new company is the Korean domestic market where share has slipped badly although Reilly said the deal had improved the outlook and reduced uncertainty. Funds will now be injected into marketing new products like the Corsa-sized Kalos, which has been well received in Korea, and more new products are expected by the end of the year.

Reilly said: "The Matiz is still very strong and the Magnus large car is also relatively new so the product story is very strong we now have to rebuild the confidence and the image." He added that the new company would take the brand back into the United States when the opportunity and time was right.

"The reason GM did not buy the North American operation was financial having looked at the state of the business, the projections for the brand and the cost involved in maintaining it. We had to look at the whole business and see if it had a chance of survival. We certainly could not carry on the way it was. We will be out of that market for a period of time but we will re-establish the network and the brand."

GM Daewoo Auto and Technology Company has capacity to build 800,000 on three shifts at its South Korean plants at Busan and Kunsan. Reilly said the intention was to achieve that volume as well as have some CKD operations around the world, such as the existing plant in Vietnam which was included in the deal, plus another based at GM’s Buick plant in Shanghai, China. To which it will supply components and technology.

He added: "We have strong skills at the R&D end of the business, we are fast to market and have relatively low cost of capital and engineering. We fully intend to capitalize on that to become a strong element of the GM family."

First thing the new company wants to do is introduce diesel engines to the range plus 4x4 sport utility vehicles, both vital to the future of Daewoo brand vehicles both at home in Korea and abroad.

In its domestic market Daewoo sales have dropped from around 25 per cent to 10 per cent, and this is not exclusively down to the financial problems of Daewoo Motor Co. Without diesel engines, SUVs or a luxury car the automaker has only been able to actually compete in 50 per cent of the market. Although cars with diesel engines are banned under Korean emission laws, diesel SUVs are allowed – a segment that is growing rapidly.

To built market share in Europe diesels, which now take around 50 per cent of the market, are a must. "Diesel engines, if not at top, are very high up on our priority list," Reilly said. "We will be looking for a 1.3 and a 1.9 or 2-litre units and this is something that has to be addressed quickly. We are looking both inside and outside the GM family for these engines."

GM-DAT plans to launch the replacement for the Daewoo Nubira in Europe next year and Reilly said that if there was a diesel option, the company could expect to increase sales of the model by at least 25 to 30 per cent.

Daewoo expects to produce 320,000 cars this year and Reilly does not expect 2003 to see any spectacular growth. "There is a lot of rebuilding work to be done with the network because there has been a lot of erosion. "Once the deal has been finalised we can put some marketing weight behind the products. In Europe awareness of Daewoo is not high and we will have to spend money building the recognition of both the brand and the products."

Around 100,000 Daewoo cars will be sold in Europe in 2002 although supply of vehicles has been drying up. At its height Daewoo was selling around 200,000 cars there. Major markets have been Italy, Spain and the UK. One of the weaknesses is that individual European markets have been allowed to do their own thing so there have been no economies of scale in terms of distribution or spare parts, this is something we will be able to significantly improve with GM."

Reilly added: "There is bound to be some overlap with other GM vehicles, particularly Vauxhall/Opel and we have to address that with the selling proposition."

Daewoo has probably been least effective in the area of sales and marketing. In Europe every market has gone about selling cars in a different way and this is another area where Reilly believes from GM Europe can help. "It will be able to co-ordinate things in a much more coherent way," said Reilly.

"Product is not a problem although there has been a reluctance to buy because people did not know what was going to happen to the company. We will continue to market the cars as Daewoo in many markets although we will have to look at the distribution network worldwide. There are some places were it will be better to use more established names, particularly in North and South America."

Published 17 October 2002 Melanie Carter
 
 

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