GM gives Daewoo key role in small car plan
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GM Daewoo Auto and Technology said on Wednesday that it had been selected as a global development base for General Motors' small car platform, which will help the US carmaker expand in Asia and Europe.
The announcement came as global demand for small cars continues to increase amid high oil prices and GM struggles with a declining US market share due to rising competition from Asian carmakers.
The US carmaker's South Korean unit, which accounts for about 10 per cent of GM's worldwide production, will design and develop a mini-car platform with diverse body styles, which will be sold under numerous GM brands in both mature and emerging markets.
"Besides helping GM in Asia-Pacific, where mini-vehicles are in great demand, this will also give us the potential to strengthen our position in more traditional markets like Europe, where they are popular as well," said Michael Grimaldi, GM Daewoo's new president.
Mr Grimaldi said GM's decision underlined a vote of confidence for the Korean unit, which has continued to lose market share to its Asian rivals such as Toyota and Hyundai Motor due to high production costs and heavy employee benefit obligations.
Since GM bought into the bankrupt Korean carmaker in 2002 for $1.2bn, GM has nursed Daewoo back to health by boosting exports and taking advantage of its well-established global sales network. The Korean unit reported earnings of $70m in its third year of operation last year on sales of $8.9bn.
Rapid sales growth at GM Daewoo also helped the US carmaker make profit in Asia this year, while its North American operations suffered losses.
GM Daewoo mainly builds low-cost compact cars and exports about 90 per cent of its output to more than 150 markets. The company expects its vehicle sales to exceed 1.5m units this year, up more than 30 per cent from a year ago, and the number will approach 2m units in the near future.
"GM Daewoo has become the most productive unit within the GM group," said Kim Hak-ju, an analyst at Samsung Securities. "Although GM keeps downsizing in the US market, it is expanding in Asia." GM Daewoo declined to specify how much investment it would get from its parent for the development of a mini-car platform but Mr Grimaldi said developing this global product base would require additional investment.
GM Daewoo had no plans to build additional plants for the project.
Last year, GM acquired Daewoo's Bupyeong plant, which was not originally included in the 2002 acquisition due to its militant labour union, and it has recruited 2,841 new employees including all 1,605 former employees who were laid off by Daewoo and wished to be rehired.
This year, it built a diesel engine plant in Gunsan and launched new models such as the Tosca mid-sized sedan and the Winstorm sports utility vehicle.
Copyright 2006 Financial Times
