The Fall of Daewoo Motors

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Case Details:

Case Code : BSTR034
Case Length : 13 Pages
Period : 1990 - 2001
Organization : Daewoo Motors
Pub Date : 2002
Teaching Note : Available
Countries : South Korea
Industry : Automobile & Automotive

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Daewoo Motors Story

The Daewoo Group entered the automobile industry in 1978 by acquiring a 50% stake in Saehan Motor Company (Saehan). Founded in 1972, 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 1982, Saehan owned a car assembly plant in Bupyong, a truck assembly plant in Pusan and a foundry at Inchon. In 1983, GM and the Daewoo Group agreed to rename their venture Daewoo Motor Company (Daewoo). In 1984, the partners decided to build additional assembly, stamping and engine facilities at Bupyong. The plants were dedicated to the production of a passenger car, Pontiac LeMans, based on the Opel Kadett platform. Production started in 1987 and about 50% of the cars were exported to the US and other international markets...

Problems at Daewoo Motors

Daewoo's problems started when Kim took huge debts to expand the automobile business. About $1.3 billion was spent on Daewoo's expansion in developing countries. It acquired an additional $1.1 billion debt to buy Ssang Yong Motor.

It was also reported that Kim had expanded Daewoo's global manufacturing capacities recklessly. He had established factories in Ukraine, Romania, Vietnam, and Uzbekistan with low investments and by making many false promises to the governments concerned. For example, in Poland, Daewoo acquired the government owned auto manufacturer by promising to invest $1.1 billion and to provide job opportunities for 20,000 workers. The company failed to fulfill its promises. The company was unable to fulfill its promises because it overestimated demand in these countries. In 1994, one year after Daewoo started assembling cars in Vietnam, the country's economy witnessed a recession, which led to a 30% reduction in the demand for cars...

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