Daewoo: GM's Hot New Engine
Moon Ihlwan, Gail Edmondson and David Welch
Business Week Online
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Remember Daewoo Motor Co.? It's the Korean auto maker that hired college kids to hawk its cars, built factories in unlikely locales such as Uzbekistan, Vietnam, and Ukraine, and once tried to woo British buyers with an offer of a free trade-in for a new model after just six months of ownership. Daewoo invested billions building a global capacity of some 2 million cars annually -- a number it never even got close to producing -- before collapsing under more than $16 billion debt in 1999. Production plunged by half, 7,000 workers lost their jobs, and scores of suppliers went belly-up.
End of story? Hardly. Today, Daewoo is back, under new ownership, and is rolling like never before. Since General Motors Corp. (GM ) bought a controlling interest in bankrupt Daewoo in October, 2002, the rechristened GM Daewoo Auto & Technology Co. has emerged as one of the most promising spots in the Detroit carmaker's empire. Even as Korea's home auto market has contracted by 30% over the past two years, GM Daewoo's sales are soaring. In the first 10 months of this year, it exported 632,000 cars and kits for assembly elsewhere, up 90% from the same period in 2003. It'll be tough to match that performance, but the company expects double-digit growth for several years to come. Although GM Daewoo declines to provide financial details, execs say the company remains in the red but that the earnings picture is improving rapidly. "We are confident we will achieve stable financial health and self-sustainability," says Joseph G. Peter, chief financial officer at GM Daewoo.
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In fact, GM's Korean subsidiary is becoming a linchpin in its plans for global expansion. GM Daewoo's cars are sold in more than 140 countries. Across Asia, they have helped increase GM's market share to 5.2% -- up from 4.2% two years ago. And in Europe, the company's five models are being pitched as high-quality, low-cost alternatives to local brands. The Korean operation "gives General Motors the opportunity to truly grow sales in Asia and in the value-market segments in Europe," says Alan S. Batey, chief of GM Daewoo's marketing.
For their money, GM and two partners got 70% of an operation that included two modern factories capable of making a total of 475,000 vehicles a year and the company's smaller facility in Hanoi.
Considering the bargain-basement price, GM execs say they were "pleasantly surprised" by what they found at Daewoo. GM imported its production, supply, quality control, and information technology systems, but the workers needed relatively little retraining. Having seen the layoffs after the company's collapse, the remaining laborers were quick to adapt to the cost-cutting and efficiency-boosting measures GM implemented -- especially as exports took off. "Our attitude has changed to 'our factory' from 'their factory,' and we saw our sacked colleagues returning as we got more work to do," says Kim Sang Hyun, production manager at the Bupyung plant.
Now, GM is retooling much of Daewoo's lineup. It has set aside $1.5 billion to build new transmission and engine plants and to develop a string of new models to be rolled out over the next two years. The first, a new Matiz minicar, is due out in Europe and Korea next spring. In 2006, GM Daewoo is planning a diesel-powered sport utility vehicle code-named S3X. And next April it's planning to unveil a new model at the Seoul Motor Show but hasn't released any details.
With GM reeling in the U.S. under the weight of pension and health-care costs, Daewoo will have to stand on its own feet. But shipments keep going up -- and the old Chevy nameplate could prove the unlikely rescuer of a troubled Korean brand.
FULL Article Here: http://www.businessweek.com/magazine/content/04_48/b3910071.htm
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Moon Ihlwan, Gail Edmondson and David Welch
Business Week Online
Remember Daewoo Motor Co.? It's the Korean auto maker that hired college kids to hawk its cars, built factories in unlikely locales such as Uzbekistan, Vietnam, and Ukraine, and once tried to woo British buyers with an offer of a free trade-in for a new model after just six months of ownership. Daewoo invested billions building a global capacity of some 2 million cars annually -- a number it never even got close to producing -- before collapsing under more than $16 billion debt in 1999. Production plunged by half, 7,000 workers lost their jobs, and scores of suppliers went belly-up.
End of story? Hardly. Today, Daewoo is back, under new ownership, and is rolling like never before. Since General Motors Corp. (GM ) bought a controlling interest in bankrupt Daewoo in October, 2002, the rechristened GM Daewoo Auto & Technology Co. has emerged as one of the most promising spots in the Detroit carmaker's empire. Even as Korea's home auto market has contracted by 30% over the past two years, GM Daewoo's sales are soaring. In the first 10 months of this year, it exported 632,000 cars and kits for assembly elsewhere, up 90% from the same period in 2003. It'll be tough to match that performance, but the company expects double-digit growth for several years to come. Although GM Daewoo declines to provide financial details, execs say the company remains in the red but that the earnings picture is improving rapidly. "We are confident we will achieve stable financial health and self-sustainability," says Joseph G. Peter, chief financial officer at GM Daewoo.
In fact, GM's Korean subsidiary is becoming a linchpin in its plans for global expansion. GM Daewoo's cars are sold in more than 140 countries. Across Asia, they have helped increase GM's market share to 5.2% -- up from 4.2% two years ago. And in Europe, the company's five models are being pitched as high-quality, low-cost alternatives to local brands. The Korean operation "gives General Motors the opportunity to truly grow sales in Asia and in the value-market segments in Europe," says Alan S. Batey, chief of GM Daewoo's marketing.
For their money, GM and two partners got 70% of an operation that included two modern factories capable of making a total of 475,000 vehicles a year and the company's smaller facility in Hanoi.
Considering the bargain-basement price, GM execs say they were "pleasantly surprised" by what they found at Daewoo. GM imported its production, supply, quality control, and information technology systems, but the workers needed relatively little retraining. Having seen the layoffs after the company's collapse, the remaining laborers were quick to adapt to the cost-cutting and efficiency-boosting measures GM implemented -- especially as exports took off. "Our attitude has changed to 'our factory' from 'their factory,' and we saw our sacked colleagues returning as we got more work to do," says Kim Sang Hyun, production manager at the Bupyung plant.
Now, GM is retooling much of Daewoo's lineup. It has set aside $1.5 billion to build new transmission and engine plants and to develop a string of new models to be rolled out over the next two years. The first, a new Matiz minicar, is due out in Europe and Korea next spring. In 2006, GM Daewoo is planning a diesel-powered sport utility vehicle code-named S3X. And next April it's planning to unveil a new model at the Seoul Motor Show but hasn't released any details.
With GM reeling in the U.S. under the weight of pension and health-care costs, Daewoo will have to stand on its own feet. But shipments keep going up -- and the old Chevy nameplate could prove the unlikely rescuer of a troubled Korean brand.
FULL Article Here: http://www.businessweek.com/magazine/content/04_48/b3910071.htm
