The Fall of Daewoo Motors

By: Vivek Tarun Tushar Jaydev

4/14/2012 1

OBJECTIVES
Introduction to Daewoo Motors Daewoo Motors India Ltd. Marketing Strategies Fall of Daewoo Motors Present Scenario
4/14/2012 2

About Daewoo Motors

Kim Woo-Choong
4/14/2012 3

NATIONAL MOTORS 1937

SAENARA MOTOR 1962

SHINJIN MOTORS 1965

TOYOTA

DAEWOO MOTORS 1978

TOYOTA Withdrawal, 1972

General Motors Korea

SAEHAN MOTOR 1976

4/14/2012

Renamed

SHINJIN MOTORS

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.

4/14/2012

In 1992, the joint-venture with GM ended, leaving Daewoo Motor as an

independent company.

4/14/2012

Daewoo Motors India Ltd.

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

DCM Toyota Ltd. in the mid-80s.

In Financial Year 1995, Koreas 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

4/14/2012

Daewoo Motors India Ltd.

Matiz

Nexia

Cielo

4/14/2012

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.

4/14/2012

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 Daewoos 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.

4/14/2012

10

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.

4/14/2012

11

Debt/Equity Ratio Hyundai vs DaeWoo

700 600 500 400 300 200 100 0 Dec 95Dec 96Dec 97Dec 98 Jun 99 Dec 99
Hyundai

Daewoo

4/14/2012

12

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.

4/14/2012

13

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.

4/14/2012

14

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

4/14/2012

15

Daewoo Groups Domestic Borrowings

unit: billion won

25,000 20,000 15,000 10,000 5,000 0

Commercial banks Non-bank financial institutions Corporate notes Commercial papers
Dec-97 Dec-98 Jun-99

Source: Korea Financial Supervisory Commision

4/14/2012 16

The beginning of the FALL

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).

4/14/2012

17

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.

4/14/2012

18

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.

4/14/2012

19

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.

4/14/2012

20

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 1990s resulted in a decline in the demand for Daewoos cars. Daewoo also faced problems in Korea when the demand for their cars reduced after increasing their production capacity.
4/14/2012 21

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.

4/14/2012

22

Conclusion
Shareholders & Stakeholders

BusinessGovernment Relations
Ownership Structure

Lack of Oversight

Daewoos Fall

Related-Party Transactions

Concentrated Decision Making Ineffective Enforcement

Financial Structure

4/14/2012

23

Kims Restructuring Plan

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 wasnt able to execute his

restructuring plan successfully and hence South Korean government Daewoo insolvent and put the company on sale.
4/14/2012 24

The Consequences-Take over

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.

4/14/2012

25

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 GM- Daewoo Motors.

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

$137 million.
4/14/2012 26

Present Scenario
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.

4/14/2012

27

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.

4/14/2012

28

4/14/2012

29

4/14/2012

30