Fall of Daewoo motors

Anuja Mangle Raheel Merchant Shweta Mehta Ranjana Mandal Megha Matthews Kashyap Mehta

Agenda

Mission statement and Aim The Daewoo motors story The fall The consequences The present scenario

Mission statement of Daewoo Group

Daewoo group started investing in many areas in which daewoo motors was a major area.

Aim

Daewoo aimed at being one of the largest contributors to the asian economy. At one time Daewoo contributed 10% of the Korean GDP

The Daewoo motors story

In 1978 Daewoo group acquired the equity stake and management rights from KDB which was acquired from shinjin motors who was into a joint venture with GM since 1972 In 1983 it was renamed as Daewoo Motors Company.

Production started by 1987 and about 50% of the cars were exported to U.S and other international markets

The partners had different opinions about the capacity expansion, profitability objectives marketing issues etc In 1992 general motors withdrew This made Daewoo the leading Automobile Manufacturing firm in South Korea In late 1993, Daewoo was the first asian car maker to earn ISO 9001

Strategies

They borrowed foreign debt for futher expansion. Introduced the concept of direct selling Also appointed Halfords to provide after sales strategies and service Price competitiveness and attractive servicing and warranty offers daewoo cars attracted good demand in the international market

Strategies

They also introduced heavy discounts to attract global customers. Entered the Small car segment to attract more customers with Matiz.

The Fall of Daewoo motors

The Rapid expansion and southeast asian financial crises of 1997-98 left the company financially vulnerable. Debt $14.5 billion domestic and 1.5 billion Foreign.

Mismanagement and corrupt corporate governance adopted by Kim Woo Choong, the founder of Daewoo group. Accounting frauds and embezzlement led to a major drawback for Daewoo

The beginning of the fall

All this began when Kim took huge debts to expand the automobile business. Reckless manufacturing investments in countries like Poland, Ukraine, Romania etc One year after Daewoo started assembling cars in Vietnam the countries economy witnessed a recession

The entry of competitors in the late 1990s resulted in a decline in demand for Daewoos cars. Daewoo also faced problems in Korea when the demand for their cars reduced after increasing their production capacity.

The Discount Strategy

Daewoo aimed at selling 1lakh cars in US but because of poor demand they had to offer steep rebates to increase volumes resulting into huge losses. In India Daewoo lost $30m per annum due to the discounts offered. Though there was an increase in revenues in UK, Germany and Italy the trend could not continue for a long time.

Kims Restructuring plan

He planned to sell about $7.5 billion worth assets of other companies and concentrate on the automobiles and the finance business. But the plan was exorbitant financially and hence did not help. They got a lower price for their hotels and shipyards because it lacked brand name and reputation.

Daewoo laid of 3000 workers and slashed the wages of remaining workers by 30%. Due to these reasons Kim wasnt able to execute his restructuring plan successfully and hence South Korean government Daewoo insolvent and put the company on sale.

The consequences-Take over

GM, Ford and DaimlerChrysler expressed interest in acquiring Daewoo. By June 2000 Ford entered negotiations . however due to certain discrepancies in Daewoo valuation of assets Ford withdrew its offer. In October 2000GM announced its interest amidst revolts and controversies an agreement was reached btwen the Korean government and GM in Sep 2001.

STEPS TOWARDS TAKE OVER

Signing of MoU with Daewoo creditors to acquire two plants in Korea and one in Egypt. GM renewed its bid for some assets in Feb 2002 to its main creditor KDB. In april 2002 GM and Daewoos creditors arrived at an agreement and created a new company GMDaewoo Motors. GM held 67% while the creditors held 33% stake by paying $137 million

Present Scenario

Daewoo workers fight GM and globalization GM Daewoo a bright spot for General Motors. GM Daewoo Auto & Technology has design, engineering, research & development facilities that are involved in development for various GM products. In South Africa, Thailand and the Middle East, Daewoo models were already being sold as Chevrolets. Only in South Korea and Vietnam does the Daewoo marque survive.