General Motors Corp is again
the favoured suitor to buy Daewoo Motor Co Ltd, but some of the best plants of
the bankrupt Korean producer are in Eastern Europe and the ex-Soviet Union, and
company officials there fear GM would shut these factories.

“Our sites in Eastern
Europe will not interest GM, especially because most are in countries that will
join the Europe Union,” Young-Jin Yoon, Daewoo’s sales director in Hungary,
told just-auto.com. “As the EU expands
east, the single market of Europe enlarges. GM has operations across the continent.
Why would it need ours?”

“GM
has operations across Europe. Why would it need ours?”

–
Daewoo official in Hungary

How well do you really know your competitors?

Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.

View profiles in store

Company Profile – free sample

Thank you!

Your download email will arrive shortly

Not ready to buy yet? Download a free sample

We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form

By GlobalData

Submit

UK USA Afghanistan Åland Islands Albania Algeria American Samoa Andorra Angola Anguilla Antarctica Antigua and Barbuda Argentina Armenia Aruba Australia Austria Azerbaijan Bahamas Bahrain Bangladesh Barbados Belarus Belgium Belize Benin Bermuda Bhutan Bolivia Bonaire, Sint Eustatius and Saba Bosnia and Herzegovina Botswana Bouvet Island Brazil British Indian Ocean Territory Brunei Darussalam Bulgaria Burkina Faso Burundi Cambodia Cameroon Canada Cape Verde Cayman Islands Central African Republic Chad Chile China Christmas Island Cocos Islands Colombia Comoros Congo Democratic Republic of the Congo Cook Islands Costa Rica Côte d"Ivoire Croatia Cuba Curaçao Cyprus Czech Republic Denmark Djibouti Dominica Dominican Republic Ecuador Egypt El Salvador Equatorial Guinea Eritrea Estonia Ethiopia Falkland Islands Faroe Islands Fiji Finland France French Guiana French Polynesia French Southern Territories Gabon Gambia Georgia Germany Ghana Gibraltar Greece Greenland Grenada Guadeloupe Guam Guatemala Guernsey Guinea Guinea-Bissau Guyana Haiti Heard Island and McDonald Islands Holy See Honduras Hong Kong Hungary Iceland India Indonesia Iran Iraq Ireland Isle of Man Israel Italy Jamaica Japan Jersey Jordan Kazakhstan Kenya Kiribati North Korea South Korea Kuwait Kyrgyzstan Lao Latvia Lebanon Lesotho Liberia Libyan Arab Jamahiriya Liechtenstein Lithuania Luxembourg Macao Macedonia, The Former Yugoslav Republic of Madagascar Malawi Malaysia Maldives Mali Malta Marshall Islands Martinique Mauritania Mauritius Mayotte Mexico Micronesia Moldova Monaco Mongolia Montenegro Montserrat Morocco Mozambique Myanmar Namibia Nauru Nepal Netherlands New Caledonia New Zealand Nicaragua Niger Nigeria Niue Norfolk Island Northern Mariana Islands Norway Oman Pakistan Palau Palestinian Territory Panama Papua New Guinea Paraguay Peru Philippines Pitcairn Poland Portugal Puerto Rico Qatar Réunion Romania Russian Federation Rwanda Saint Helena, Ascension and Tristan da Cunha Saint Kitts and Nevis Saint Lucia Saint Pierre and Miquelon Saint Vincent and The Grenadines Samoa San Marino Sao Tome and Principe Saudi Arabia Senegal Serbia Seychelles Sierra Leone Singapore Slovakia Slovenia Solomon Islands Somalia South Africa South Georgia and The South Sandwich Islands Spain Sri Lanka Sudan Suriname Svalbard and Jan Mayen Swaziland Sweden Switzerland Syrian Arab Republic Taiwan Tajikistan Tanzania Thailand Timor-Leste Togo Tokelau Tonga Trinidad and Tobago Tunisia Turkey Turkmenistan Turks and Caicos Islands Tuvalu Uganda Ukraine United Arab Emirates US Minor Outlying Islands Uruguay Uzbekistan Vanuatu Venezuela Vietnam British Virgin Islands US Virgin Islands Wallis and Futuna Western Sahara Yemen Zambia Zimbabwe Kosovo

Industry * Academia & Education Aerospace, Defense & Security Agriculture Asset Management Automotive Banking & Payments Chemicals Construction Consumer Foodservice Government, trade bodies and NGOs Health & Fitness Hospitals & Healthcare HR, Staffing & Recruitment Insurance Investment Banking Legal Services Management Consulting Marketing & Advertising Media & Publishing Medical Devices Mining Oil & Gas Packaging Pharmaceuticals Power & Utilities Private Equity Real Estate Retail Sport Technology Telecom Transportation & Logistics Travel, Tourism & Hospitality Venture Capital

Tick here to opt out of curated industry news, reports, and event updates from Just Auto.

Submit and download

Visit our Privacy Policy for more information about our services, how we may use, process and share your personal data, including information of your rights in respect of your personal data and how you can unsubscribe from future marketing communications. Our services are intended for corporate subscribers and you warrant that the email address submitted is your corporate email address.

GM, a 50% owner of Daewoo
from 1978 to 1992, tried to acquire the Korean company last year, but it failed
to close a deal before its exclusive negotiation rights expired.

Since Ford Motor Co abruptly
broke off its talks for Daewoo on September 15, authorities in Seoul have vowed
to find swiftly an owner for the ailing automaker. GM is widely seen as the
best (perhaps only) candidate. But all bidders, including the team of DaimlerChrysler
AG and Hyundai Motor Co Ltd, have been reluctant to pursue a take-over – because
of concerns about the extent of Daewoo’s debts and obligations to companies
and governments. The value of these commitments is still disputed.

Concerns also resonate throughout
Daewoo, but they centre on the intentions of a new owner, even though the automaker
has no control of its destiny (surrendered to its creditors in July 1999). Apprehension
may be greatest about GM, particularly among Korean executives in the old communist
bloc. There, between 1994 and 1998, Daewoo created a broad network of big plants
with huge production targets.

Here, There & Everywhere

In the Czech Republic, Poland,
Romania and Ukraine – Daewoo zealously acquired automakers that were stagnating
and state-owned, pledging enormous investments that won over governments worried
the factories could collapse without imminent rescue by a foreign owner. In
Russia, the Korean company licensed car assembly to an affiliate. Only in Uzbekistan
did Daewoo launch operations without a local partner that already had capacity
to make vehicles. (The company even looked at producing in Belarus, Bulgaria,
Croatia and Yugoslavia.)

Remarkably, Daewoo’s combined
production capacity is greater here than at home: it can make annually 1.4 million
units in the old East bloc, 1.3 million units in Korea.

But capacity is theory,
not praxis. Sites in Eastern Europe with low use face the axe anyway.

Migraine Motors Ltd

“Our factories in the
Czech Republic, Romania and Ukraine are big headaches,” Yoon said. “Our
efforts to sell them have failed, and they will be closed sooner or later –
by Daewoo or its new owner.”

Daewoo’s best and biggest
ventures in Eastern Europe are in Poland, where the company took-over and transformed
a pair of state-owned plants: FSL in Lublin (bought in 1995 and renamed Daewoo
Motor Polska Sp z oo); and FSO in Warsaw (bought in 1996 and renamed Daewoo-FSO
Sp z oo).

The acquisitions in Poland
propelled Daewoo into a battle with Fiat Auto SpA for sales leadership there,
an impressive feat, given the Italians have dominated this market for nearly
80 years. In 1998 and 1999, the Koreans eclipsed Fiat, the best performance
of an Asian manufacturer in any market in Europe – East or West.

As Poland represents nearly
50% of demand for new vehicles in the 11 markets of Eastern Europe reporting
reliable statistics, Daewoo has ranked second in sales in the region behind
Volkswagen AG in the past two years.

Indeed, Daewoo views Poland
as its home outside Korea. It plans to open centres there with international
responsibility for: design and development of vehicles; spare parts; and training.

“Poland is our strategic
base in Europe,” Choon Sik Yoo, chief executive and president of Daewoo
plants in Lublin and Warsaw, said earlier. “It is a second headquarters
for our operations worldwide, and it will ship significant volumes of vehicles
to the EU.”

“Poland
is a second headquarters for our operations worldwide.”

–
Daewoo official in Poland

Poland boasts great strengths
commercially, demographically, geographically and logistically. It is the eighth-largest
market for new vehicles in Europe – ahead of Belgium, behind Netherlands. Its
population of 39 million compares favourably with Spain, and its consumer base
and labour force are growing enviably younger, while most nations in Europe
are ageing. Poland is unique in Europe to border the biggest market in the East
(Russia) and the biggest market in the West (Germany): it is the main passage
for cross-continental goods haulage, including the transport of stolen vehicles.

So Daewoo should be able
to tantalise any bidder solely with its operations in Poland, despite problems
with its factories elsewhere across Eastern Europe.

Three’s A Crowd In Poland:
GM + Fiat +… Daewoo Too?

Unfortunately for Daewoo,
Poland is the last place in Eastern Europe where GM needs capacity. In 1998,
the US automaker opened a DM1.0-billion plant there to build 150,000 cars a
year for its European marks Opel and Vauxhall. The site is a model for lean
manufacturing, and GM has grown deeply averse to acquiring any operations saddled
with inefficiencies, outdated technology and over-employment – problems that
analysts still find at Daewoo in Poland.

Moreover, GM recently formed
an alliance with the ultimate partner in Poland: Fiat. (In an equity swap in
July, the US automaker took 20% of the Italian company, which in turn took 5%
of GM.) Fiat helped launch the auto industry in Poland in the 1920s, and it
remains the biggest car producer there. Its plants in Bielsko-Biala and Tychy,
both in southern Poland, together can pump out 350,000 units a year. Roughly
half the output is exported. (The factories, now named Fiat Auto Poland SA,
formed an automaker called FSM under communism, but they always have built Fiat
vehicles.)

Daewoo has two engine plants
in Poland (one a diesel manufacturer). But GM may not want them either. Isuzu
Motors Ltd, owned 49% by the US automaker, opened a DM370-million factory in
Poland in June 1999 with annual capacity to make 300,000 diesel engines, mainly
for Opel and Vauxhall. Plus Fiat and GM, under a 50/50 merger of their powertrain
operations in Europe and South America, plan a factory in Poland with annual
capacity of 460,000 motors.

As a sign of the close role
it plans to play with Fiat in emerging markets, GM stressed it would involve
the Italians in any bid for Daewoo.

“GM has plenty of capacity
across Eastern Europe,” said Zbigniew Szczepanik, director of parts procurement
at Daewoo-FSO. “A better owner for Daewoo would be Ford or Hyundai to maintain
competition in Poland – and to maintain employment in Daewoo-FSO.”

[If GM would buy Daewoo,
the US automaker and its equity partners would control nearly 70% of auto sales
in Poland, based on 1999 data. Since closing assembly plants this summer in
Belarus and Poland, Ford has no factories in Eastern Europe, though it plans
to open a site in late 2001 in Russia.]

Pole Positioned For GM

In Poland, Daewoo’s one
asset of genuine interest to GM could be DMP in Lublin, a maker of light-commercial
vehicles, a segment where the US automaker is weak throughout Europe. GM’s only
product here is Vivaro, based on Trafic of Renault SA.

Vivaro debuted only this
year, but observers believe GM still needs another utility vehicle, especially
one originating in a low-cost country like Poland. DMP could be attractive.
In early 2001, it plans to rollout a new model range developed with LDV Ltd
in Birmingham, the UK. (The British company, owned 50% by DMP, produces light
trucks and vans.)

“Vivaro is a conservative
vehicle that is not meeting GM’s goals for market share,” an insider close
to Daewoo said. “GM may see new opportunities with the products from DMP
and LDV.”

The new models vary in gross
weight from 2.0 tonnes to 3.5 tonnes: lighter versions are named BD100, heavier
versions are named LD100. Both will be offered as drop-sides, minibuses, panel
vans and pickups.

Spy pictures of the DMP/LDV BD100 and LD100 – these models are planned for a 2001 debut
Images supplied by Daewoo: Source TRUCK

Daewoo – GM’s Skoda?

“Our role for GM in
commercial vehicles could be similar to Skoda’s role for VW in passenger vehicles,”
a DMP source told just-auto.com. “We
offer good models at great prices. VW wanted Skoda to compete against cars from
Korea. Ironically, GM could use us to compete against light trucks from Europe.”

The current range of DMP
vehicles, named Lublin-3, costs between PLN33,000 ($7,200) and PLN67,000 ($14,600).
In comparison, Ford Transit in Poland costs PLN62,000 ($13,400) to PLN122,000
($26,500).

One of the current range of DMP vehicles, named Lublin-3

But GM would need to settle
an ownership issue specific to the Birmingham-Lublin axis. If control of Daewoo
changes, the board of LDV has the right to buy back DMP’s 50% stake in the UK
company. A GM purchase of the Korean producer could provoke LDV to spurn Lublin,
but executives from Birmingham look favourably upon the US automaker.

“Daewoo and GM know
each other well,” Ian Strachan, public affairs consultant for LDV, told
just-auto.com. “They have a natural
affinity, and this could be good for us.”

Conceivably, GM could try
to strip out DMP from the improbable mix of Daewoo’s holdings, but Korean creditors
surely would reject any cherry-picking, wary of winding down an asset sale with
bushels of rotten leftovers. Lublin may be hard to extricate anyway – its light
trucks are sold exclusively through Daewoo dealers.

Split Decision?

Yet attempts to sell all
of Daewoo have failed. So efforts may turn to unloading chunks, large yet palatable,
to different investors. A prominent view now is to split domestic operations
and foreign operations in the hope GM will buy the former and Hyundai will buy
the latter.

This approach looks geo-logical.
It would offer capacity to GM and Hyundai only where each most wants it, not
where each least needs it.

In general, Daewoo’s overseas
plants hold little interest for GM. The capacity overlap, not limited to Eastern
Europe, stretches to places like Egypt and India.

Conversely, GM is keen to
develop a strong presence in Korea, the world’s 11th-biggest market for new
vehicles in 1999. The best means to that end remains the acquisition of Daewoo’s
operations there, especially since few foreign models are imported there.

Hyundai Eyes Eastern
Europe

Hyundai, which captured
with Kia over 70% of auto sales in Korea last year, may relish the prospect
of monopolising its home market with an acquisition of Daewoo. But this is unlikely,
as competition authorities there stridently oppose it.

Outside Korea, the capacity
overlap of Daewoo and Hyundai is in China, Egypt, India, Indonesia, Iran, Poland
and Russia. But India may be the only market where excess factory space is a
concern, as other undertakings in common locations are relatively minor.

Hyundai is hungry for factory
sites in Europe, especially in the old Eastern bloc. Throughout the 1990s, Hyundai
has explored opportunities to produce in Bulgaria, Hungary, Poland, Russia and
Yugoslavia. The best means to this end is the acquisition of Daewoo’s operations
in the region.

Hyundai contracts out basic
assembly of its commercial vehicles in Poland, but this is not viable long-term.
The company must appeal to the authorities in Warsaw each year for licenses
to import kits, and this gets harder every time.

If Hyundai would buy Daewoo’s
foreign plants, it would have ample capacity in Eastern Europe, and it may get
a chance to instil fresh life at operations in Czech Republic, Romania and Ukraine.

Brand & Management
To Change

But Hyundai looks certain
to replace Daewoo’s products plus the Korean managers. Eventually, all sites
likely would make Hyundai models with Hyundai managers, and a changeover would
start immediately.

“When Hyundai took
over Kia, it dispatched people to replace all Kia managers domestically and
internationally,” Yoon said. “Hyundai likely would do this with Daewoo…
I expect to stay in Hungary until the end of this year, but I imagine I will
return to Korea, once Daewoo has a new owner.”

Non-Korean officials at
Daewoo plants in Eastern Europe also believe Hyundai would phase in its products.
But, they said privately, they would not oppose an owner that preserved their
jobs.

Hyundai, however, may keep
Daewoo’s products in Uzbekistan, where old models Nexia and Tico are still made.
Nexia is the best-selling foreign vehicle in Russia, and it could remain popular
there for years. [Uzbekistan – strictly part of Central Asia, not Eastern Europe
– was among 15 republics of the ex-Soviet Union.]

Breaking Up Is Hard To
Do

Daewoo may seem naturally
divisible, especially to GM and Hyundai. But a split could be a logistical nightmare.
Daewoo created great inter-dependence among its factories for components, engines,
gearboxes and vehicles. (Example: Daewoo makes Matiz in Romania with supplies
from Korea and Poland, and it builds Matiz in Poland with parts from Korea and
Romania.) Efforts to untangle the web could fail.

“Any breakup of Daewoo
would be complex – even political,” a Daewoo official in Poland said. “It
may be best to keep the company together.”

To others, the best solution
for Daewoo is any solution that is quick. As the ownership question lingers,
hesitation among potential customers for the company’s cars only spreads. Over
the past year, Daewoo sales have plunged in Eastern Europe. Car buyers worry
about the availability of service and spare parts, and they fear residual values
of Daewoo models will collapse.

“An owner should be
found as soon as possible,” Szczepanik said recently. “Until then,
we must suspend work on many projects. We can only wait. This is like the first
half of the 1990s, when we waited for GM to buy FSO, until Daewoo bought FSO
instead.”

Until it spiralled into
financial ruin, Daewoo enjoyed seven-straight years of astonishing gains in
sales in Eastern Europe. Indeed, it was poised for much of the past two years
to challenge VW for market leadership of the region.

Good Idea: Bad Execution

The company achieved success
because it entered Eastern Europe with a bright idea at the right time. In the
mid-1990s, consumers in the region were weary of models from indigenous producers
like Dacia and Lada, but few could afford better brands like Opel and VW. Between
cheap low-quality local marks and expensive high-quality imports, Daewoo tried
to fill a big gap in the middle of the market with decent models at decent prices.

It did. But this niche was
not enough for Daewoo, which abandoned all discretion in a quest to dominate
the auto industry in this part of the world. It over-exposed itself to risk,
investing heavily and quickly in too many markets with uncertain prospects.
If it had carefully chosen only a couple countries for factories to supply vehicles
across Europe, its strategy may have flourished.

Now, though, Daewoo executives
in Eastern Europe see a bleak future – the automaker cannot afford to keep its
plants, but no one else may want to buy them.

Daewoo never grasped the
dangers it courted because its top officials felt invincible. This is exemplified
in an interview with Jung-Ho Choi, president of the company’s operations in
Europe in the mid-1990s. The interview was in February 1996, a period of high
spirits, before the economic crises in Asia that triggered Daewoo’s downfall.
Excerpts capture the attitude:

“Korea has conquered
the ups and downs of economic cycles. Our country has enjoyed decades of continuous
growth, and we want to help Eastern Europe to develop the same way… Our
financial situation is sound… Daewoo Group is the 33rd-largest company
in the world. Compared with our assets, capabilities and financial power – our
plans to build cars in Eastern Europe are not big. We have no doubt about our
ability to achieve these goals… Other automakers may invest less than us
in Eastern Europe. But must we follow others? If we do, believe me, we will
fail.”

This innocent overconfidence
undid Daewoo.

Any bidder for Daewoo still
needs time to work out a value for the company – precisely because the Korean
manufacturer never took proper stock of the assets it was haphazardly accumulating
around the world. Even today, the automaker’s creditors seem not to understand
this.

Author:
Ryan James Tutak, associate editor at just-auto.com
for Eastern Europe

Ryan can be contacted in
Budapest by:
E rjt@pronet.hu
F +36-1 / 317-7257
T +36-1 / 266-2693

To view a related report within our Knowledge Store, please click here.

Sign up for our daily news round-up!

Give your business an edge with our leading industry insights.

Sign up