In 2010, General Motors was considering rebranding some of the vehicles produced by its Korean unit (Song, 2010). GM had purchased a controlling interest in Daewoo Motor Company, the car-making subsidiary of bankrupt Daewoo Corporation, for $400 million in 2002. It renamed the company GM Daewoo Auto and Technology, and its Korean unit GM Daewoo. GM made a major injection of cash in upgrades as it introduced its production system, quality control, and information systems technology.

Relations with the workers, happy to be employed after the layoffs as Daewoo Motors collapsed, were generally cooperative. However, GM Daewoo felt it had to give the workers large wage increases, resulting in higher labor costs (Moon et al., 2004).

GM Daewoo made substantial profits for GM for several years after its acquisition. While Korea’s home auto market had contracted by 30% in late 2002 through early 2004, GM Daewoo enjoyed rapid growth through exporting. In the first ten months of 2004, it exported almost two-thirds of a million cars, up 90% from the first ten months of the preceding year.

GM Daewoo became GM’s main producer of small cars for sales worldwide as other ventures proved unprofitable. In 2010, GM withdrew from NUMMI, its 20-year joint venture in making small cars in California with Toyota.

Throughout the 20 years of the joint venture, GM had experienced disappointing US sales of GM-branded automobiles from NUMMI. This was in spite of the fact that Toyota-branded vehicles produced from the same production line by the same people sold well. The difference resulted from poor consumer views regarding GM small cars. GM also closed Saturn, its small car-producing subsidiary. In spite of high productivity, high quality, and excellent customer acceptance of the Saturn-branded automobiles, the subsidiary had never made a profit. This was a result of a combination of factors. GM never provided funding to the subsidiary to enable it to expand its line into the larger size vehicles many satisfied customers wanted as they moved up economically. At times the parent company also failed to provide adequate capital for model changes and/or adequate advertising.

The GM Daewoo-produced cars are sold in many countries in Asia and Europe, with exports accounting for about 90% of its output. Initially, most were sold under the Daewoo brand. This was changed to using the Chevrolet brand in Europe and most of Asia from January 2005.

The change was made because of adverse publicity surrounding the Daewoo name which resulted from the closing of an unrelated company in France named Daewoo Electronics. The Daewoo name was also used by other non-automobile companies in parts of eastern Europe and GM felt that possible problems with them might further damage the brand name (Griffiths, 2004).

Within South Korea, GM Daewoo continued to use the Daewoo brand name because of the country’s strong nationalist sentiment. Producing cars with two or more different brand names, and even with differences in design, on the same production line is not a problem. (While the Japanese were pioneers in doing this, companies in many countries now do so.) In 2008, a combination of the global economic downturn and the loss of domestic market share in Korea resulted in a 34% fall in sales and a loss of $775 million.

At its height, Daewoo Motor Company had a 33% share of the Korean market. By 2008, this had slipped to 7.9% as Hyundai Motor and affiliate Kia Motors captured over 70% of the Korean domestic market (Song, 2010). It is also significant that GM Daewoo’s parent, most other American and European manufacturers, and even some Japanese manufacturers lost US market share to Hyundai in 2009. While GM’s US sales including its small cars declined in 2009, Hyundai actually sold more cars. In 2010, Hyundai continued to increase sales in China, India and the US (Song and Betts, 2010). Hyundai had been achieving sales growth for several years as they greatly improved the quality of their automobiles, and emphasized their faith in the product by providing warranties that were longer than those offered by other manufacturers.

At the same time, Hyundai kept prices lower than those of similarly sized and equipped cars produced by other companies.

In looking for ways to increase sales and market share, GM Daewoo is continuously introducing new models. In 2011 when Daewoo was fully acquired by GM, the Daewoo name was discontinued and replaced by Chevrolet.

GM Daewoo’s general manager was targeting a major increase in sales for 2010, which seems optimistic considering the company was already over two months into the year when he indicated the target. The introduction of three new models may help, as major manufacturers have often achieved increased sales when doing so and lagged in sales when few new models are introduced.

However, having more new models will only be effective if they are well designed, of high quality, and competitively priced. The fact that GM Daewoo has lost market share to Hyundai, and its American parent has also lost market share to Hyundai in the US, should be a matter of concern.

One of General Motors problems was that for many years the company continued to base its plans on assumptions that they would attain a larger market share and sales, while the opposite continued to occur. Honda and Toyota continued to gain market share as they simply provided cars that were generally of higher quality and lower price. It may well be that GM Daewoo’s current problems include issues of quality, labor productivity, and price as well as the design of its cars.

The proposal to change its brand name in Korea seems to be counterproductive. The country’s consumers show a preference for domestic products when available, and a change in name would make it seem more foreign. It would also likely be unpopular with the workers who don’t want to be seen as employees of a foreign firm.

Questions

1. Should GM Daewoo go ahead with their plans to introduce three new models when sales have already fallen. Why?
2. Should GM Daewoo change the brand name used on their cars sold in Korea from GM Daewoo to Chevrolet? Why?
3. Should GM Daewoo examine other factors such as the comparative prices, quality, design, and perhaps labor cost with respect to Hyundai? Why?