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The Fall of Daewoo Motors

By: Vivek

Tarun

Tushar

Jaydev

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OBJECTIVES

• Introduction to Daewoo Motors

• Daewoo Motors India Ltd.

• Marketing Strategies

• Fall of Daewoo Motors

• Present Scenario

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About Daewoo Motors…

Kim Woo-Choong

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SAENARA MOTOR 1962

SHINJIN MOTORS 1965

General Motors Korea

SAEHAN MOTOR 1976

NATIONAL MOTORS 1937

DAEWOO MOTORS1978

TOYOTA

SHINJIN MOTORS Renamed

TOYOTA Withdrawal,

1972

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ABOUT DAEWOO• The Daewoo Group entered the automobile industry in 1978 by

acquiring a 50% stake in Saehan Motor Company (Saehan). • Saehan was a 50-50 joint venture between Shinjin Motor, and

General Motors(GM).• In 1976, Shinjin Motors faced financial problems and sold its 50%

stake in Saehan to the Korea Development Bank (KDB).• In 1978, the Daewoo Group acquired the equity stake and

management rights from KDB.• In 1983, GM and the Daewoo Group agreed to rename their

venture Daewoo Motor Company (Daewoo).• Production started in 1987 and about 50% of the cars were

exported to the US and other international markets.

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In 1992, the joint-venture with GM ended, leaving

Daewoo Motor as an independent company.

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• Daewoo Motors India Ltd. (DMIL) was incorporated in India

as DCM Toyota Ltd. in the mid-80s.

• In Financial Year 1995, Korea’s Daewoo Corporation bought over DCM Toyota`s equity and increased its holdings to over 90 per cent by Financial Year 1997.

• The company has also given good cars to Indian roads:-Cielo, Matiz and Nexia

Daewoo Motors India Ltd.

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Daewoo Motors India Ltd.

Matiz

Nexia Cielo

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Continued…• After the Daewoo Group gained control in 1978 the name

was changed to Daewoo Motor Co. in 1983.

• About 50% of the cars were exported to U.S. and other international market.

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About DMIL

• Daewoo Motors was one of the successful auto makers in

India. Originally incorporated to manufacture light

commercial vehicles.

• In July 1995, DMIL launched Daewoo’s 1500cc Cielo. The car

did get a good reception and its sales decelerated since the

3rd quarter of Financial Year 1997. Since then it had

slowdown in the mid-size car segment. Next, Daewoo

launched Matiz in the small car segment and Nexia a mid

size car segment.

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However…

• Daewoo motors, despite of being the single largest investing

company in the Indian Automobile Industry, has not attained

that kind of success for which they had hoped. The price slash

boomeranged on it. It has thrown an adverse affect on sales,

raising queries related to the quality of the reduced price

model.

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Debt/Equity Ratio Hyundai vs DaeWoo

Dec 95

Dec 96

Dec 97

Dec 98

Jun 99 Dec 99

0

100

200

300

400

500

600

700

Hyundai

Daewoo

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Strategies • They borrowed foreign debts for further expansion.• Introduced the concept of direct selling.

• Price competitiveness and attractive servicing and warranty

offers Daewoo cars attracted good demand in the

international market.

• They also introduced heavy discounts to attract global

customers.• Entered the small car segment to attract more customers

with “MATIZ”.

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Discount Strategy• In India Daewoo lost $30 million per annum due to the

discounts offered.

• Also, Daewoo aimed at selling 1 lakhs cars in U.S. but

because of poor demand they had to offer steep rebates to

increase volumes resulting into huge losses.

• Though their was an increase in revenues in U.K. , Germany

and Italy the trend could not continue for a long time.

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Financial Structure

• Due to the financial crisis, Daewoo Group could no longer maintain financial balancing act

• Foreign debt jumped from 26.3 trillion won to 49 trillion won

• $5.1 billion in foreign currency loans; $1.9 billion in foreign currency loans to convertible bond owners

• Sudden increase in interest rates led to financing costs jumping from 3 trillion won to 6 trillion won

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Daewoo Group’s Domestic Borrowings

unit: billion won

Source: Korea Financial Supervisory Commision

Commercial banks

Non-bank fi-nancial in-stitutions

Corporate notes

Commercial papers

0

5,000

10,000

15,000

20,000

25,000

Dec-97

Dec-98

Jun-99

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• The company had made a net profit of Rs. 28.15 crores for the first six month of the previous year. However, the net profit of Rs. 1.43 crores for the full year ended March 1997 was realized.

• Net sales and income from operations also dipped substantially to Rs. 168.79 crores for the first half of the fiscal year 1998 compared to Rs. 428.10 crores for the same period the previous year.

• Interest burden increased more than five fold at Rs. 22.92 crores (Rs. 4.36 crores).

The beginning of the FALL

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Fall of DMIL…• The paid-up capital as of March 1997 was Rs. 511.18 crores

and reserves stood at Rs. 286.40 crores.

• A company statement said that its performance is expected to improve significantly after facilities of engines, transmissions and other components become fully operational. However, industry sources feel that the sales target of Rs. 800 crores for 1997-98 announced by DMIL's Managing Director, Mr. S.G. Awasthi, does not seem achievable.

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Fall of DMIL…• Therefore, in order to provide a quick fix to the net income

problem and thus increasing profit Daewoo had to cut price.

• Faced with increasing competition and a sharp decline in sales, Daewoo Motors India Ltd., a subsidiary of South Korea's Daewoo Motor Co., cut prices of all its cars by over 20%.

• Company officials said the cut was done to pass lower production costs on to consumers, although some agreed the fall in sales prompted the move.

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Fall of DMIL• "On the whole, we have a very positive cost advantage on

the Cielo (model) now, with over 70% of the car locally made," Managing Director S.G. Awasthi said.

• Awasthi, however, agreed there has been a sharp decline in sales of Daewoo cars in India to a projected 12,000 to 13,000 during the year ending March 31, from over 15,000 in the previous financial year.

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Fall of Daewoo Motors…• All this began when Kim took huge debts to expand the

automobiles business.

• Reckless manufacturing investments in countries like

Poland, Ukrain, Romania etc.

• One year after Daewoo started assembling cars in Vietnam

the countries economy witnessed a recession.• The entry of the competitors in late 1990’s resulted in a

decline in the demand for Daewoo’s cars.• Daewoo also faced problems in Korea when the demand for

their cars reduced after increasing their production capacity.

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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.

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Conclusion

Business- Government

Relations Ownership Structure

Related-Party Transactions

Financial Structure

IneffectiveEnforcement

Concentrated DecisionMaking

Lack of Oversight

Shareholders&

Stakeholders

Daewoo’s Fall

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• He planned to sell about $7.5 billion worth assets of other companies and concentrate on the automobiles and 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 wasn’t able to execute his

restructuring plan successfully and hence South Korean

government Daewoo insolvent and put the company on sale.

Kim’s Restructuring Plan

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• GM and Ford expressed interest in acquiring Daewoo.

• By June 2000 Ford entered negotiations.

• In October 2000 GM announced its interest amidst revolts

and controversies an agreement was reached between the

Korean government and GM in Sep 2001.

The Consequences-Take over

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• 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 Daewoo’s creditors arrived at an

agreement and created a new company GM- Daewoo

Motors.

• GM held 67% while the creditors held 33% stake by paying

$137 million.

Steps towards TAKE OVER

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• Daewoo has failed in the car market indeed; however,

Daewoo Corporation is still alive in other markets.

• Daewoo workers fight GM and globalization

• GM Daewoo – a bright spot for General Motors.

Present Scenario…

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Present Scenario…

• 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.

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