The official inauguration of GM Daewoo Auto & Technology Co Ltd (GMDAT) brings to an end over two years of lengthy and intense negotiations between General Motors of the US, the Korean Government, Daewoo Motor Co Ltd’s (DMCL) creditors and its labour unions. But the task of re-inventing South Korea’s second-largest automaker has only just begun, writes Tony Pugliese.

The challenge now lies in rebuilding a company decimated by five years of decline, which includes three years of administrative control. The new company will need to reverse the under-investment, the supply chain disruption, the massive customer losses in key markets and the new product pipeline depletion that has taken place since the 1997-98 Asian economic crisis.

The new company is 42.1%-owned by General Motors’ wholly owned Australian subsidiary, Holden Ltd, whose managers have played a major role in the evaluation and subsequent takeover talks over the last two years. Suzuki Motor of Japan holds a 14.9% stake and, interestingly, Shanghai Automotive Industry Corporation – GM’s Chinese partner, also became a strategic investor with a 10% stake – which it acquired for US59.7m. The new owners paid a total of just under US$600 for the new company, including US$197m that DMCL’s creditors (led by the Korea Development Bank) had to stump up so they could become non-strategic shareholders in a company whose assets they already owned. Their combined equity in the new automaker is 33%. For their earlier complacency, the mostly South Korean lenders are widely expected to write off bad loans amounting to around US$12bn.

After initially balking at the extent of the write-offs that the deal would entail, it soon became apparent to the many DMCL lenders that General Motors was the only company prepared to sit around the table and thrash out a deal. Ford Motor Company showed some initial interest in the early part of 2000, though it beat a hasty retreat once the mist lifted from DMCL’s US$17bn debt mountain. By March 2002, the company’s debts had risen to just under US$20bn. There was to be no other company with the resources or the management inclination to sift through the bombed out ruins of DMCL, let alone come up with a viable business plan. Nationalisation of the company would have been a dubious, short-term solution with at best shaky longer-term prospects.

Has GM pulled off a coup?

With General Motors calling every shot during the negotiations, it certainly appears that Rick Wagoner’s team has pulled off a brilliant management coup. They have picked up assets that offer very significant growth potential at a fire-sale price, and in doing so Rick Wagoner will be credited with what may well transpire as the deal of his presidency.

There is no doubt that there are risks associated with this deal, especially in the current global market environment, and General Motors itself faces huge pension and other retiree-related liabilities that have been exacerbated by the current equity market slump. They are said to be the worst in the industry. Management has been under pressure to grow the business to accommodate these liabilities, and is under even more pressure to get the “Korean patient” back on its feet as quickly as possible.

The new company

In addition to the cost of buying into GMDAT, the Korea Development Bank is extending a US$850m loan at a fixed annual interest rate of 6% and a further US$850m at market interest rates. Woori Bank will loan the automaker US$200m and a further US$100m will be loaned by each of Chohung Bank and Korea Exchange Bank. This will give GMDAT working capital of US$2bn, which the company hopes will be enough to take it through to breakeven by 2006. GMDAT will assume $573m in operational liabilities relating to the assets it is taking over and will acquire stocks of component and vehicles currently in the system to a value of $385m.

Of the domestic plants, the new company assumes control full control of the 320,000-unit Kunsan assembly facility, which makes Daewoo’s mid-sized cars such as the Nubira and its MPV derivatives, and the 240,000 Changwon plant, which makes the Matiz mini-car.

The ageing Bupyong plant, located in the western suburbs of Seoul and dedicated to making the Kalos and Magnus passenger cars, as well as buses and trucks, will remain under direct control of the creditors and run by the existing management. This plant is locked in a six-year deal to supply GMDAT and related dealer networks at home and overseas with vehicles, engines and gearboxes.

The Daewoo Motor plant in Hanoi, Vietnam, is the only overseas manufacturing facility to have been included in the deal, along with the sales and distribution network. Most of the overseas sales/distribution companies that GMDAT has assumed control of are located in Europe, including the networks in Austria, Benelux, France, Germany, Italy, Spain and Switzerland, as well as the components distribution operations in the Netherlands. The only non-European sales network outside the Asia-Pacific region that GMAT will control directly is in Puerto Rico. Separately, Holden Ltd revealed that it will be taking over the Daewoo Motor distribution operations in Australia, which it plans to incorporate under a separate company called GM Daewoo Australia. Franchises will be offered to the current 122 dealers in the country.

Daewoo Motor’s overseas capacity by plant


Company Name

Investment year







Daewoo Motor Poland




Daewoo Automobile Romania SA



Czech Republic

Daewoo-Avia AS




UZ-Daewoo Auto Company




Avto-Vaz  Daewoo




Guilin-Daewoo Bus




Daewoo Motors India




Vietnam-Daewoo Motors




Filipinas Daewoo Industries




Kerman Motor Corp




Daewoo Motor Egypt



Total overseas capacity


*Annual capacity. **Included in the GMDAT deal.
Sources: Daewoo Motor Corporation; industry sources.

The deal leaves out over 1m units in overseas assembly capacity, in addition to the 500,000-unit domestic Bupyong plant. Most of this capacity is located in Eastern Europe and Central Asia. The ratio of capacity that had been built in these markets versus the sales potential in many of these countries is completely out of proportion and General Motors is not willing to get involved directly.

Daewoo Motor India, with 150,000 units in annual capacity and saddled with high debts, also comes under this category. GM is willing to allow CKD kits to be supplied, and rights to the Daewoo brand extended, to the local companies on a deal by deal basis. Nevertheless, for many of these operations, the future looks very bleak indeed – something that the KDB, other creditors and the local partners will have to deal with on their own.

The Bupyong production operations will be included into a new company owned by the creditors, to be called Daewoo Incheon Motor Company Ltd. GMDAT will share its headquarters with this new company, at least for now, and run the R&D centre which it acquired as part of the deal. The plant itself is Daewoo’s oldest, and thus the least efficient, but GM needs the passenger car models it produces. It has six years to find a solution, which may involve building a new plant and R&D facility altogether, or refurbishing the existing plant. It has stated it does not to want the bus and truck operations, but none of its other partners (including Isuzu Motor) appear in a position to absorb them.


The new board, headed by President and Chief Executive Officer Nick Reilly, formerly the head GM’s UK unit, Vauxhall Motors, will have its first official meeting on Monday 28th October. Mr Reilly is supported by Chief Financial Officer David Meline, formerly in charge of GM Brazil’s finances, and by the former head of GM’s Middle-East sales Alan Batey, who has been appointed Vice-President in charge of Sales and Marketing. Holden Ltd’s Managing Director Peter Hannenberger will also have a seat on the board of directors.

The final shareholder structure, and separate developments further afield, offer an indication as to how GMDAT will fit in to General Motors’ global strategy. Last year Holden assumed a pivotal role in managing General Motor’s South-East Asian operations, and this has now been extended to cover most of Asia. The company played a fundamental role in evaluating and negotiating the Daewoo asset takeover, allowing GM management in North America and Europe to focus on running their respective businesses in these tough market conditions.

Holden’s business volumes are likely to rise as a result of the acquisition. The company is hoping for a rebound in engine exports from Australia to South Korea as Daewoo output recovers, and eventually (though mostly indirectly) to other Asian countries. Managing Daewoo’s distribution in Australia will also add to business volumes, in a country where automakers are trying to justify their existence in a rapidly globalising industry. But equally as important are Holden’s engineering skills, which will be put to use in developing future Daewoo models in collaboration with the Bupyong R&D centre.

The recently launched supermini,

Daewoo Kalos

Domestic market recovery a priority

General Motors has said that GMDAT’s first priority will be to regain its position in the South Korea passenger car market, which is expected to exceed 1.2m units this year. Its market share has dropped from almost 30% in 1997 to between 10-15%, amid falling consumer confidence in the company, production cut-backs due to industrial action, supply-chain disruption, suggestions of falling quality and a slow-down in new model development activity compared with rival Hyundai-Kia.

During the protracted negatiations, General Motors had encouraging continuation of some of the more advanced R&D projects at Bupyong, and looks set to follow up on the inauguration of the company with a new mid-sized car based on a revised version of the Nubira II platform (J200). Local reports suggest that a 1.5L model will be launched in November, followed by a 2.5L version in December. The B-segment Kalos was introduced earlier this year. A revised Matiz is likely to be launched in May 2003, although this may be delayed if Suzuki Motor gets involved in Daewoo’s mini-car programme at an early stage.

This renewed activity, additional efforts to bolster consumer confidence and special promotions should help the Daewoo brand recover some of its lost market share in the short term. For future products in the longer term, the focus will be on using GM off-the-shelf technology, the local R&D centre’s skills in adapting technology to produce apparently unique products, and the support of Holden’s engineering department. The strong presence of Delphi in South Korea will also be of significant benefit.

Overseas growth will follow

GMDAT will be used as a springboard for expansion in other countries in the region and beyond, though it is likely to take longer for this to take effect. In Australia, Daewoo will be kept as a separate operation in the short term and renewed efforts will be made to return volumes to their 2000 peak of 20,000 units. Similar efforts will be made in western Europe, as GM consolidates control of the distribution subsidiaries in these markets. In Eastern Europe, a new regional office has been established in Budapest, Hungary, to overlook the operational recovery in central and eastern European markets. New franchise deals are likely to be offered to dealers, and in some countries CKD assembly may resume. In eastern and western Europe, Daewoo products and sales operations will most likely remain separate from General Motors’ existing operations.

But it will be in Asia where most of the synergies will be developed. Daewoo Motor will provide the low-cost product that GM needs to develop its market share in Asia. Apart from the collaboration it is putting in place in Thailand with Isuzu Motor, which has yet to prove itself successful, General Motors has very little in the way of volume products for the ASEAN markets. The Thai-made Zafira is predominantly exported to markets outside the region and will be discontinued – probably in favour of a Daewoo model to be sold across the ASEAN region under he Chevrolet badge. Sales in Indonesia have been disappointing, with the Tavera model (a Chevrolet-badged Isuzu’s utility vehicle) failing to make up for the sales decline of the Blazer model. In India, too, GM sales have been disappointing, and its presence elsewhere is limited.

Only in the Chinese market has General Motors met with success, but here too GM will need to expand its range to consolidate its gains. The luxury Buick models sold well initially, but have since fallen back to a fraction of their peak 2000 volumes once the initial demand was fulfilled.  The sub-compact Sail model has taken over as the main volume car in China, but competition in this segment is intensifying rapidly. Bringing in Shanghai Automotive Industry Corporation, General Motors’ Chinese partner, into the new GMDAT will further cement the relationship and pave the way for technology transfer deals between the Korean and Chinese joint ventures.