1/1/2006 | 8 MINUTE READ

EuroAuto: GM’s Global Approach Leverages Daewoo

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There are a number of interesting facts that have come out of General Motors in the last few weeks.


Facebook Share Icon LinkedIn Share Icon Twitter Share Icon Share by EMail icon Print Icon

There are a number of interesting facts that have come out of General Motors in the last few weeks. One is that for the first time it sold more vehicles in the rest of the world than in North America. Another is that Chevrolet is the market leader in its segment in North America by a country mile. And yet another is that Chevrolet is the world’s fastest growing brand. All this against a gloomy backdrop in North America with the threat of thousands of job cuts and plant closures.

Last year, Chevrolet sold 3.3 million units globally, but not all were made in North America. In fact, at least 434,000 units, or 13%, were made in Korea by GM Daewoo Auto & Technology. This is the company that GM helped to create after the original Daewoo Motor company crashed so badly in 2001, leaving debts, a bad name and poor labor relations. GM Daewoo is, in fact, only partially owned by GM, which has 52% of the shares; Suzuki and Shanghai Auto each own10%, and the remaining 28% is owned by shareholders. Under the stewardship of Nick Reilly, a GM veteran with experience in Europe, particularly at Vauxhall, the British operations that form part of GM Europe, the company officially came into being on October 17, 2002. The first tasks for the management team were to stabilize the situation, pacify the workforce, and develop some key new models as quickly as possible. At the same time, work commenced on the grand plan which was to introduce Chevrolet to Europe and the rest of the world with products that had nothing to do with Michigan, or indeed any part of the U.S.

“When GM bought Daewoo it did not include the manufacturing facilities in some central and Eastern European countries like Poland and Rumania,” says Erhard “Hardy” Spranger, the head of the transition team that established the GM Daewoo Auto & Technology. “As the cars that continued to be made there were called ‘Daewoos’ while ours were called ‘GM Daewoos,’ we thought that it would be far too confusing for the customer, so we decided from the start to call our cars ‘Chevrolets’ in this region.” The reason for selecting the Chevrolet name, says Spranger, was because it was the perfect choice to develop a market presence and a product portfolio. It was to become, in Spranger’s words, the “foundation brand” for GM Europe.

In the beginning, though, the company had a far from certain future. It might have had a fairly loyal customer base amounting to just under one million people worldwide who each needed to be contacted individually in a massive direct mail campaign, but its sales were still hemorrhaging away. In 2002, for example, there were just 100,000 sales in Western Europe. Small though the numbers were, the percentage increases went in the right direction, with the company recording 133,000 sales in 2003 and 190,000 sales a year later. By the end of this year, it expects to reach between 230,000-240,000 sales in the region and has set a target of 500,000 units by 2008.

“The first objective in Europe,” says Reilly, “was to meet the best year the old company had in Europe, and this we have now achieved.”

This sales success is not just limited to Western Europe, but is reflected in a growth in sales in central and Eastern Europe, which has recorded an 80% increase with 80,000 sales, as well as increased sales in different regions around the world. In fact, Chevrolet is now the world’s fastest growing brand, claims Rick LaBelle, GM Daewoo’s vice president of commercial operations in the Korean market, as well as being responsible for its export activities to more than 140 countries.

However, it is not as straightforward as it seems, because what might be a Chevrolet in Europe, is a Daewoo in its home market in Korea, a Suzuki in North America and Puerto Rico, a Pontiac in Canada and Mexico, a Holden in Australia, and a Buick in China and Taiwan. So while it may have sold only 190,000 Daewoos last year, it did, in fact, produce more than a million vehicles in Korea. Reilly and his team know that the ultimate success of the company depends on having the right product. At the time of the takeover, the cupboard was pretty bare. The midsize sedan Lacetti was already in development at the time of the takeover, so this was given a priority, enabling it to be introduced in 2002. The Kalos, also known as the Aveo in some markets, was next on the list and successfully launched a year later. In the U.S., where it is known as the Chevrolet Aveo, the name that is to be standardized over time for GM Daewoo’s small car around the world, it has gained a 48 % market share in the small car segment, 18 points ahead of the second-place Hyundai Accent. “It has put GM into a segment it wasn’t competing in before in the U.S. and it has been recognized for its great value and quality,” says Spranger.

Meanwhile, a new version of the Matiz, the small city car that had originally been launched in 1997 but which had started to feel its age, was introduced at the start of 2005 while work began on an updated version of the Evanda, the company’s top-of-the-line model, which will be coming to Europe as the Epica. At the same time, realizing that they were missing an executive class car for its home market, GM Daewoo “leveraged” its GM status to import the Holden Statesman into Korea from late May this year badged as a Daewoo. However, all this could be said to be steadying the ship because the next phase represents the biggest steps in the new company’s young career.

Representing something like 26% of the domestic market in Korea, the sports-utility vehicle (SUV) is an important sector, but one in which GM Daewoo has not had a product. However, this is being rectified with the launch early next year of the Captiva, badged as a Daewoo in Korea and as a Chevrolet in Europe. It is an important vehicle for other reasons, though, one being that it was the creation of the “home team” rather than one commissioned from Italy, and secondly, it will feature GM Daewoo’s first diesel engine in the range along with a 2.4-liter petrol engine.

Until recently, diesel-powered passenger cars were forbidden in Korea. This put the local carmakers at a disadvantage in Europe because without some domestic demand, there was little incentive for the Korean carmakers to develop and produce such an engine for the relatively small numbers they were selling in Europe. The Korean government listened to the carmakers and accordingly changed the law. Rather than develop its own common-rail engine, GM Daewoo formed a partnership with the Italian engine manufacturer VM Motori, a surprising move considering that it is a subsidiary of DaimlerChrysler, while Fiat-GM Powertrain was part of the GM family when the decision was made. However, at the time GM Daewoo entered discussions, Fiat and GM were coming up to their divorce and while it did not put a stop to the separate talks with GM Daewoo, it did not help. Negotiations still continued, but when Fiat allegedly changed the rules, everything fell apart. Ironically, since the GM-Fiat divorce, both companies have the right to use the engines, but by then the Korean carmaker had already looked around and had reached an agreement with VM Motori. Staying within the GM family, GM Daewoo had also talked to Isuzu but found them too expensive. Within six weeks of initiating talks with VM Motori, the decision was made to partner up with them.

In its home market, it is hoped that the Captiva will boost Daewoo’s market share from the current 9.5% to around 15% in a short space of time while in Europe it is seen as not just putting another product in the marketplace, but for making a statement about Chevrolet and its brand values. Another important feather in GM Daewoo’s cap is its role within GM as the “architecture development location for all small cars worldwide for GM.” What this means is that GM Daewoo is the lead partner for all B-sector small car development wherever that model is destined to be made and marketed. “This strategy has huge engineering savings and a doubling of volume when talking to suppliers,” says Reilly. It does not mean to say that it is a one-shoe-fits-all policy, but rather defining the strict rules that govern a global platform while allowing enough flexibility when it comes to engines, transmissions, rear suspension, front struts and so on to give a car a completely different character. It also means that at any given point, GM Daewoo is hosting engineers from other companies within the GM group whilst also posting its own engineers at other engineering centers elsewhere. “Typically there may be a core team of 70 including engineers, purchasing, quality and financing resources that will leverage local engineering resources,” says Reilly. “However, at least half the team may not be Korean but engineers from Opel or North America with responsibility to keep in touch with their respective businesses. They will stay in Korea as the liaison once the local regions start to develop their own models.”

When it comes to suppliers, Reilly is committed to giving more work to Korean companies over time. Over the last few years, the level of local purchasing has increased from $100 million to $700 million, but Reilly’s target is to more than double that to around $2 billion over the next two to three years. “However, Korea’s suppliers must be able to compete on a world basis, something they have been reluctant to do until recently, and only then through joint ventures with overseas companies.” Currently, GM Daewoo has assembly plants in Bupyong, where the Kalos/Aveo (428,000 capacity) and Evanda (70,000 capacity), in Gunsan where the Lacetti/Nubira and Rezzo/Tacuma models are made (403,000 capacity) and Changwon where the Matiz city car and Damas and Lobo light commercial vehicles are made (259,000 capacity) bringing total capacity to 1,160,000 units a year.