Daewoo marketed cars in the United States for only about 1,300 days, but its story was as interesting as its cars were bland. The narrative of the company’s rapid home-market growth, its ambitious efforts to sell cars globally, its offbeat plans for US sales, and its rapid departure from these shores reads like no other. Spotting this Leganza – the first Daewoo I’ve seen in years – seemed like a good opportunity to share this odd corporate story with Curbside’s readership; so let’s take a ride back to when new Daewoos roamed the earth.
If you recall Daewoo-branded vehicles at all, you probably remember the few years in the late 1990s and early 2000s when they suddenly sprouted up all of the world… before quickly disappearing without a trace. What you may not realize is that these cars were produced by one of the world’s largest companies, which risked everything in order to design and market a range of vehicles for global consumption. Much of that plan depended on successfully selling cars in the United States – the proceeds of which were to repay years of heavy investment and expansion. Of course, things didn’t work out quite as planned.
Daewoo’s early history is a remarkable account of corporate growth. Founded in South Korea as a textile company in 1967 by 31-year-old Kim Woo-choong – using a $5,000 loan – the firm quickly catapulted in size. Within two decades, Daewoo boasted $40 billion in global sales, became Korea’s second-largest chaebol (conglomerate), and produced everything from construction equipment to firearms to consumer electronics. Kim’s meteoric rise was made possible by near-constant expansions into new business lines, and by his knack for purchasing moribund businesses at bargain prices, and then turning them around. His strategy also benefited by being in the right place at the right time, for as Korea’s economy emerged from its historically isolated nature, Daewoo and its Chairman Kim were right there ready to lead the charge.
Kim Woo-choong relentlessly pursued new business lines, and saw one in particular as his company’s potential crown jewel – automobiles. Accordingly, he entered the car business in 1978, as he had with many other industries, by acquiring a stake in an insolvent company. That company, Saehan (formerly Shinjin) Motors, had produced relatively small quantities of Completely Knocked Down (CKD) Nissans and Toyotas since the early 1960s.
Toyota pulled out of this manufacturing alliance in the early 1970s – and General Motors stepped in to take its place, acquiring a 50% stake in the Korean firm. This changed the company’s CKD output to GM vehicles, such as the Chevrolet 1700 above, which was a rebadged Holden Torana. However, within a few years, the partnership went broke. In 1978, Kim Woo-choong’s Daewoo acquired the 50% of Saehan that was not owned by General Motors… and so Daewoo’s first steps into the auto business came with GM as a partner.
Daewoo-branded vehicles first emerged in the early 1980s. For the first decade, Daewoo followed its fellow Korean manufacturers of Hyundai and Kia by producing mostly small, inexpensive vehicles based on other manufacturers’ underpinnings, in this case GM. American consumers’ first introduction to Daewoos came with the 1987 Pontiac LeMans, built by Daewoo and (oddly) sold as the Daewoo LeMans in its home country, replete with Pontiac’s arrowhead badge. This LeMans didn’t create a good first impression; sales fell short of expectations, and the car developed a reputation for poor quality. Chairman Kim was convinced that Daewoo could do a better job of building cars on its own. Accordingly, in 1992, Daewoo Group (what the parent company was called) bought GM’s share of its joint venture for $200 million, and Daewoo Motor became an independent manufacturer.
The 1990s were Daewoo Group’s glory days, and upon gaining independence from GM, Kim was determined for Daewoo Motor to become a global automotive company. And thus started the heavy investment in R&D and production capacity that eventually led to Daewoo’s US vehicles. But that didn’t come cheaply; through the 1990s, Daewoo went heavily into debt, with a strategy that depended on strong future worldwide sales to repay those obligations. This was, of course, a risky strategy, but debt and risk were nothing new to Kim Woo-choong – after all, his company’s massive growth in the 1970s was largely due to debt financing and taking risks that other investors shunned.
Daewoo’s embrace of debt financing becomes understandable when reading interviews of Kim Woo-choong, or excerpts from his book. In general, Kim embraced debt as the best way to bring about quick growth over a short period. At one point, he said “If we don’t have technology, we can buy it. If we don’t have money, we can borrow and repay it when we make it.”
Importantly, Kim wasn’t afraid of failure. Failure is a fact of life for the ambitious, and like many entrepreneurs, he was convinced of his ultimate success, even if that meant occasionally taking a financial bath. He wrote in his book: “It is too bad if you lose money, but money is one of those things that is OK to lose since you can always make more.”
Of course, debt reliance is a risk that is bound to collapse if continued indefinitely – a fact that eventually brought about the end of Mr. Kim’s empire. By the time our featured Leganza was built, Daewoo Group was $80 billion in debt, much of it related to expanding its automobile business. Later in life, Kim confessed that “My big mistake was being too ambitious, especially in autos.”
Ambitious, he certainly was. Kim planned a two-pronged approach to global car development. First, he prioritized producing and selling cars in emerging markets and post-communist states, where dominance of local car markets was largely up for grabs. Second, he planned to design a new range of vehicles for western Europe and North America. This all required investing billions of dollars, constructing a dozen factories, and coordinating two technical centers (one in Korea, the other in England) to design several new cars, from scratch, at once.
Initial results were encouraging, as cars like the Tico above became popular in some markets. But to pay back its debt, Daewoo needed to go big – specifically, big sales of bigger, more profitable cars in the world’s biggest auto market… the United States.
Daewoo initially planned a Fall 1997 US launch, but… that’s exactly when the company began to unravel. The US launch was delayed for a year, and in the meantime, the entire Daewoo Group attempted to stare down doom. Furthermore, South Korea’s national economy was in danger of collapsing due to the spreading Asian Financial Crisis. Many corporations became unable to repay creditors. This, in turn led to a lack of confidence in the Korean economy, which brought about slower growth… which led to more loan defaults. Some big companies were quickly raked into this mess: Kia Motors, for instance, declared bankruptcy in 1998, and during that year South Korea’s entire auto industry was operating at just 40% capacity.
From the Financial Crisis’s outset, it was clear that Daewoo’s position was precarious, resulting from the years of heavy borrowing to develop new car lines. Cracks soon emerged in Chairman Kim’s business plan to repay that borrowed money with profits from vastly increased global sales. The financial crisis squelched demand for new cars throughout Asia, upon which Daewoo relied. Without strong domestic and other Asian sales, Daewoo found itself sitting on a huge production capacity, but with few buyers. The company couldn’t pay interest on its loans, and the entire conglomerate collapsed with astonishing speed.
And it was under these stormy skies that Daewoo first appeared in the US market… certainly not the best of timing, but Daewoo had no choice. US sales comprised the linchpin of Daewoo’s plan to return to profitability and repay debts – without high-margin US cars, the company had no hope whatsoever. So Daewoo gave it a good college try. Literally.
There is no easy, or cheap, way to introduce a car brand to a nation of 280 million people. Daewoo needed to stand out in the crowd – a tough task because its offerings of compact to midsize sedans fell squarely in the most crowded part of the US car market. And much to Daewoo’s chagrin, Korean cars didn’t have a stellar reputation in the US at that time.
So Daewoo executives set about doing things differently – very differently – in order to get noticed. Upon Daewoo’s September 1998 US launch, the company’s marketing strategy eschewed traditional advertising and dealership infrastructure as much as possible, and instead attempted to infiltrate the market via building buzz among trendsetting college students. It was hoped that this would serve as a back-door into US popularity. Of course, it didn’t quite work out that way, but it sure makes for an interesting story.
First off, Daewoo planned on operating mostly factory-owned dealerships, to save on distribution costs and realize lower costs for consumers. This setup was common in Korea, and had also been used by Daewoo with some success in Great Britain (where it had operated since 1995). However, many US states forbade manufacturers from selling directly to customers, or allowed it only with certain restrictions. Daewoo initially planned to concentrate on those states last, and to use franchised dealers only where required by law. Unfortunately, this strategy became at odds with Daewoo’s burning need for a quick expansion, and was quickly abandoned in favor of traditional dealerships.
Aside from factory dealerships, Daewoo also considered some other unusual tactics, but most were never put into practice – again because of the growing urgency of just making sales. For example, the company explored the possibility of direct Internet sales, which would certainly have been eye-opening in the 1990s. They also considered leasing space in retail stores such as Kmart or Walmart for sales operations, and partnering with national repair chains such as Pep Boys or Penske Auto Centers for service (Penske did partner with Daewoo briefly). Daewoo’s initial plan envisioned an unconventional dealership experience, with no-haggle pricing, and sales staff who handled both the financing and sales aspects of each transaction. But in the rush to open a huge number of dealerships in a short timeframe, those goals were abandoned. Daewoo dealers ended up being rather conventional affairs.
However, the most unusual aspect of Daewoo’s early US marketing strategy was on whom it focused: College students… as promoters, sales personnel and customers. What could possibly go wrong? Plenty, obviously, and this plan’s details sounded like a sophomore-year term paper rather than a strategy by one of the world’s largest companies to sell durable goods in the world’s largest consumer market. But… this really happened.
The idea went like this: Daewoo hired students as “campus advisors,” who, provided with loaner cars, were to promote those cars to their fellow students, friends and family. As independent contractors, campus advisors were remunerated in two ways: by commissions of up to $500 on each sale, and by generous discounts on their own purchase of a new Daewoo. These students didn’t actually conduct the sales transaction – rather they promoted Daewoo cars, and directed customers to nearby dealerships, where financial components of each sale (and the actual delivery) would take place, overseen by a small core of professional sales staff.
Why on earth would Daewoo do this? To stand out in the crowd – affordably. Kim Woo-choong explained the rationale shortly before sales began: “We cannot compete with other manufacturers who are selling big units, with bigger advertising and promotion budgets. It is better to go for some special segment.” The reasoning here was that college students were more likely than the general population to be early adopters and buy a little-known foreign car brand… therefore, marketing to this “special segment” would (hopefully) create enthusiasm among a demographic group known for being originators of many trends. Daewoo eventually hired several thousand campus advisors nationwide.
There were, of course, more than a few flaws in this logic. For example, Daewoo paid to fly each advisor to Seoul for training and factory tours, but after those students graduated, all of that training would be lost. Also, aside from the commission, this business model did little to reward the dedication needed to promote a new consumer brand (advisors were expected to work 8-10 hours per week doing things like handing out flyers and hosting test-drive events, but there was little accountability). Many campus advisors undoubtedly used the position as a resume-booster, and an opportunity to get a free loaner car for a few months. Lastly, the concept of peer-marketing may work for small-ticket items, but few students would soak up a classmate’s sales spiel enough to actually buy a $12,000 car.
In addition to on-campus activities, Daewoo’s early US effort also strove for a wider “guerilla marketing” aspect, with grassroots-type promotions aimed at young, hip and trend-setting people. For example, in several cities, Daewoo gave away cars for one year via radio station promotions, tried to drum up business at places like record stores and pizza shops, and for a brief time, partnered with performance venues to display cars at concerts of carefully selected bands such as the Beastie Boys and Pearl Jam.
College advisors and guerilla marketing were intended to provide Daewoo cheap, hip buzz to make the brand succeed. But within a few months it became clear that this innovative sales strategy wasn’t working. Daewoo needed more dealers, professional sales staff, and traditional marketing… and needed them quickly. By mid-1999, Daewoo’s US strategy shifted by 180 degrees.
Daewoo plunged into doing the opposite of its initial strategy – and plunged with all the vim and vigor characteristic of Kim Woo-choong’s frenetic business ethos.
Please select Page 2 to continue
Pages: 1 2