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04/10/2023 1
The Fall of Daewoo Motors
By: Vivek
Tarun
Tushar
Jaydev
04/10/2023 2
OBJECTIVES
• Introduction to Daewoo Motors
• Daewoo Motors India Ltd.
• Marketing Strategies
• Fall of Daewoo Motors
• Present Scenario
04/10/2023 3
About Daewoo Motors…
Kim Woo-Choong
04/10/2023 4
SAENARA MOTOR 1962
SHINJIN MOTORS 1965
General Motors Korea
SAEHAN MOTOR 1976
NATIONAL MOTORS 1937
DAEWOO MOTORS1978
TOYOTA
SHINJIN MOTORS Renamed
TOYOTA Withdrawal,
1972
04/10/2023 5
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.
04/10/2023 6
In 1992, the joint-venture with GM ended, leaving
Daewoo Motor as an independent company.
04/10/2023 7
• 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.
04/10/2023 8
Daewoo Motors India Ltd.
Matiz
Nexia Cielo
04/10/2023 9
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.
04/10/2023 10
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.
04/10/2023 11
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.
04/10/2023 12
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
04/10/2023 13
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”.
04/10/2023 14
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.
04/10/2023 15
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
04/10/2023 16
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
04/10/2023 17
• 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
04/10/2023 18
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.
04/10/2023 19
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.
04/10/2023 20
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.
04/10/2023 21
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.
04/10/2023 22
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.
04/10/2023 23
Conclusion
Business- Government
Relations Ownership Structure
Related-Party Transactions
Financial Structure
IneffectiveEnforcement
Concentrated DecisionMaking
Lack of Oversight
Shareholders&
Stakeholders
Daewoo’s Fall
04/10/2023 24
• 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
04/10/2023 25
• 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
04/10/2023 26
• 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
04/10/2023 27
• 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…
04/10/2023 28
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.
04/10/2023 29
04/10/2023 30