Automotive World - GM Daewoo shows signs of distress

GM Daewoo shows signs of distress

By: Glenn Brooks, Tuesday, June 30, 2009, AutomotiveWorld.com

While clashes between striking Ssangyong workers and riot police have been making the headlines in South Korea, a less visible but potentially far bigger crisis is brewing for another, far larger local OEM. GM Daewoo, one of the cornerstones of production and product development for New General Motors (GM), is showing increasing signs of major distress as sales and exports plummet.

So just how bad are things for GM Daewoo? It has been a tough 2009 for the company as exports of rebadged cars for other GM divisions to markets in Europe and North America slowed dramatically from Q1. Then, at the end of April came news from its main creditor, Korea Development Bank, that it needed to carefully consider a request for Won 1tr (US$780m) in debt refinancing and new funding. GM Daewoo is still waiting for an answer on that one.

Meanwhile, as cashflow continues to worsen due to lost exports, sales of new Daewoo cars and light commercials have collapsed. In Russia, one of the few overseas markets for the Daewoo brand, vehicle sales were down by 58% in May. In South Korea, by contrast, vehicle sales rose by 21% year-on-year for the same month but Daewoo’s car range suffered a 36% fall. Moreover, not one of the firm’s cars made it into the top ten best sellers’ list, particularly worrying when its newest product - the Lacetti Premiere sedan - is only months old. The firm’s cheapest car, the Matiz, was outsold even by Hyundai’s pricey Genesis. As for registrations of Daewoo’s once popular microvans and mini-pick-ups, these plunged by 88% in May in an LCV market down by only 4% year-on-year.

The problem for Daewoo is an image that has been badly damaged by the constant reports in the South Korea media of its financial travails. The GM-controlled company has never had pockets as deep as those of Hyundai Motor (HMC) and for nearly six months now, HMC has been squeezing its smaller rival in every segment of the domestic market. Hyundai and Kia had total sales of 303,650 cars in the first five months of 2009, giving them a combined market share of 76%, down only slightly on numbers for the January-May 2008 period (311,932). Daewoo, by contrast, managed only 31,250 new car registrations in the first five months of this year, a 39.4% fall. Adding insult to injury, Renault-Samsung has now pushed ahead of Daewoo to become the local market’s number three brand.

A weak balance sheet means GM Daewoo cannot afford to match the incentives that HMC and Renault Samsung are using to attract buyers back into showrooms at home. Relying on exports to improve cashflow looks increasingly tricky, too, with the strengthening Won as unwelcome a development as the recent statement by GM India, a major client, that it has begun to phase out imports of CKD kits. The problems do seem to be mounting up for GM Daewoo, with seemingly little it can do to solve them.

The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.

Published on Tuesday, June 30, 2009