2010 Daewoo Corvette
08-30-2005, 04:41 PM
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2010 Daewoo Corvette
In General Motors Corp.'s most efficient automobile engineering center, technicians in tan and brown jackets measure the dimensions of metal car bodies with beams of laser light as thin as the lead of a pencil.
The lab isn't based at GM's Detroit headquarters; it's a five-story edifice that's part of a square-mile complex of worn brick and concrete buildings in the Bupyung district of Inchon, South Korea, located 15 miles (24 kilometers) southwest of Seoul and hidden in a maze of identical white apartment towers that reach to the horizon in all directions.
GM got the Bupyung complex when it paid creditors of bankrupt Daewoo Motor Co. $251 million in 2002 -- a deal that Ford Motor Co. had passed up. Today, GM says that Bupyung engineers, who design, build and test prototype cars, are 20 percent more efficient than their U.S. counterparts. They also work for half of the $85,000 annual pay of Detroit engineers and toil nights and weekends.
The techniques they design for building $9,995 subcompact cars are so precise that GM, the world's largest automaker by sales, says it will adapt them to the $45,000 sport utility vehicles it will sell next year in North America to take full advantage of the GM-Daewoo union.
``It was a marriage made in heaven,'' says Michael Robinet, an analyst at CSM Worldwide in Farmington Hills, Michigan. ``GM needed low-cost development capabilities in Asia, and Daewoo needed stability and an external market.''
Junk-Bond Status
GM Chief Executive Officer Rick Wagoner, 52, whose company tumbled to junk-bond status in May as it discounted cars in the U.S. as much as 29 percent to clear bloated inventories, is relying more on overseas factories such as Bupyung to boost sales abroad.
GM's North American auto business, hemorrhaging cash, had a loss of $2.98 billion in the first half of 2005 to cap a miserable five years in which the company's stock plunged 71 percent.
GM cars made with Daewoo, sold as Chevrolet Aveos, became the best-selling subcompacts in the U.S. in the first half of this year, surpassing Hyundai Motor Co.'s Accent. The Aveo also contributed to sales gains in Korea, China and Europe.
``GM Daewoo is like a seed that they've planted and that they're germinating,'' says Wil Stith, a portfolio manager at MTB Investment Advisors in Baltimore, who helps manage about $2 billion in fixed-income assets, including GM debt. ``The future growth for GM is definitely in Asia.''
$3 Billion Investment
By the middle of 2006, GM will have invested $3 billion into GM Daewoo Auto & Technology Co., the Inchon-based company that controls the plant and runs the engineering center, GM's third- largest among 11 worldwide, says Nick Reilly, 55, GM Daewoo's CEO.
By 2012, the Asia-Pacific region may be as important to GM as the U.S. or Europe, Reilly says. GM must make that a reality to avoid plunging into a profitless pit by decade's end, says John Casesa, a Merrill Lynch & Co. auto analyst in New York. ``Capitalizing on growth in Asia through Daewoo is essential if GM is to achieve a profitable mix of businesses,'' Casesa says. ``They can't do it by just cutting costs in North America.''
GM now considers GM Daewoo the company's leader in engineering the alignment of metal body parts, a process that makes cars sturdier, more responsive and more attractive to buyers, says Mike McGarry, 51, GM's Warren, Michigan-based executive director of vehicle bodies.
The company is studying ways to adopt GM Daewoo's methods for making hoods, fenders and headlights join in a radius of 2 millimeters (0.08 inch), one-third of the 6 millimeters on past GM models, McGarry says.
`Jewellike Features'
``Some of the jewellike features that GM Daewoo executed, we spent time trying to learn exactly how they do that and how to apply that learning to our programs in North America,'' he says.
The better alignment may help sell as many as 300,000 redesigned versions of GM's largest SUVs in North America during 2006, says Michael Bruynesteyn, an analyst at Prudential Securities Inc. in New York. A sleeker look and better handling will help the company avoid losing sales as it reduces its average discount of $5,860 by an estimated $3,000 next year, Bruynesteyn says.
GM has yet to announce discounts on the Chevrolet Tahoe and Cadillac Escalade full-size SUVs. GM will give financial analysts their first look tomorrow at trucks and SUVs that will replace models such as the Chevrolet Suburban next year, in a multibillion-dollar gamble that Americans paying record high gasoline prices still want large trucks.
$51 Billion in Revenue
The current models generate about $51 billion in revenue a year, according to Burnham Securities Inc. analyst David Healy -- more than the sales at three-fourths of the companies in the Standard & Poor's 500 Index.
The automaker had said little about the new trucks, known internally as the GMT900 line and which include the GMC Sierra pickup and Escalade and Tahoe SUVs. GM has claimed that they will be more fuel efficient than the models of pickups and SUVs they replace. The U.S. price for a gallon of regular unleaded gasoline reached $2.612 a gallon last week.
GM discounted nine of its 76 North American models more than 20 percent in July, led by the 29.6 percent price cut on the Saab 9-2X, according to Santa Monica, California-based Edmunds.com, which tracks automaker incentives for consumers. Carmakers don't release rebate data.
The discounts helped push down revenue 2.9 percent to $94.3 billion in the first half of 2005.
DaimlerChrysler
GM shares fell 15 percent to $34.04 in the year through Aug. 29 compared with a 19 percent gain in DaimlerChrysler AG stock and a 0.3 percent advance in the Standard & Poor's 500 Index.
GM shares peaked at $93.63 on April 28, 2000, and closed at $26.75 on April 28, 2005.
Standard & Poor's cut GM's rating on $196 billion of debt to BB, two levels below investment grade, on May 5. The spread on GM's 8.375 percent bonds maturing in 2033 widened to 519 basis points more than comparable U.S. Treasuries on Aug. 9 from 302 basis points on Dec. 31. A basis point is 0.01 percentage point.
``The sooner GM can use investments like Daewoo to develop overseas manufacturing and bring the lower costs inherent in that to bear in North America, the better,'' says Scott Colbert, who helps manage $7 billion, including GM bonds, at Commerce Bank Investment Management in St. Louis.
GM Daewoo produced about one in 10 of the vehicles GM sold worldwide in the first half of 2005, limiting the company's losses in its auto production outside North America to $94 million. In the first half, sales of GM Daewoo-built Chevrolets rose 67 percent in China and 22 percent in Southeast Asian nations such as Thailand.
Aveo Sales
Sales of the Aveo gained 66 percent in the U.S. to 35,245. That made it the country's best-selling subcompact, cars that are less than 14 feet (4.3 meters) long, according to CSM Worldwide. Subcompacts account for 1.2 percent of the 17.2 million vehicles sold in the U.S.
GM needs GM Daewoo to succeed because GM devotes fewer of its resources to engineering than its rivals, Casesa says. GM allocates 8 percent of its total revenue to capital spending and research, less than the 10.5 percent for Toyota City, Japan-based Toyota Motor Corp.
GM will redesign or replace 64 percent of its U.S. vehicle fleet from 2006 to 2009, less than the 90 percent for Toyota, Casesa says.
GM first formed a joint venture with Daewoo Motor in 1978 and abandoned it 14 years later amid concern that Daewoo Group founder Kim Woo Choong was taking on too much debt. Daewoo was Korea's second-largest group of industrial businesses, including shipbuilding, electronics and financial services as well as cars.
Cheap Korean Assets
Daewoo eventually failed in auto manufacturing because Kim used debt to build 14 new or joint venture factories in overseas countries such as China, India and Poland before attracting customers for his cars, Reilly says.
Automakers around the world started buying cheap Korean assets after July 1997, when Thailand scrapped its policy of pegging its currency to the U.S. dollar, a change that forced Indonesia, Malaysia and the Philippines to follow.
South Korea agreed to a $57 billion international bailout organized by the International Monetary Fund in December 1997. GM entered into negotiations to buy Daewoo in 1998 under then Chairman John F. Smith. Kim fled the country in 1999.
In 2000, DaimlerChrysler took a 10 percent stake in Seoul- based Hyundai, the country's largest automaker. Renault SA, based in Boulogne-Billancourt, France, took a 70 percent stake in the automobile division of Seoul-based Samsung Group.
Ford Offer Withdrawn
Ford offered $6.9 billion for Daewoo in June 2000 and withdrew its offer three months later after examining the company's books. DaimlerChrysler, based in Stuttgart, Germany, sold its 10 percent stake in Hyundai last year.
GM's talks with Daewoo dragged on because Smith and then President Wagoner said at the time they needed to assess the value of the assets, including the Bupyung plant. As GM negotiated in March 2001 to buy bankrupt Daewoo Motor, then Korea's second-largest automaker, labor activists protested job cuts by attacking GM's office in Seoul with fire bombs.
A month earlier, hundreds of union workers had clashed with riot police outside the gates of the Bupyung complex.
In November 2002, GM and Suzuki Motor Corp., the Hamamatsu, Japan-based automaker in which GM owns a 20 percent stake, along with joint venture partner Shanghai Automotive Industry Corp. of Shanghai and a group of Korean banks, paid a combined $1.17 billion for most of Daewoo's assets.
Shanghai Automotive
For its $251 million, GM received 42.1 percent of the company. Today, GM has 50.9 percent, Suzuki owns 11 percent and Shanghai Automotive holds 9.9 percent.
Kim returned to Seoul in June 2005, at age 68, to seek treatment for an ailing heart. Korean prosecutors indicted him two weeks later for exaggerating the group's assets by 41 trillion won ($39.8 billion) and borrowing 10 trillion won on the basis of the inaccurate accounting.
In surrendering to authorities, Kim said in a statement: ``I am solely responsible for Daewoo Group's inability to overcome the financial crisis. I will accept the appropriate consequences.''
The only assets at the Bupyung complex that GM doesn't yet own are two Daewoo vehicle assembly buildings, though the automaker controls the processes and has installed equipment developed at the nearby GM Daewoo engineering center.
GM upgraded the assembly buildings because it had committed to buying them from Daewoo Inchon, plant manager Han Ik Soo says.
Assembly Lines
GM Daewoo says it plans to buy the assembly lines, which are already operating like other GM factories worldwide, by the end of the year.
The only difference has been that GM has paid Daewoo Inchon to assemble the cars.
GM's steady investment in the engineering center and in the manufacturing buildings has encouraged assembly employees to cooperate with GM management, Reilly says.
Productivity on the Bupyung assembly line that makes the Aveo has climbed 21 percent to 18.6 hours per vehicle this year from 2000, Han says.
Each morning at the complex, located in the same city as the Inchon International Airport that serves Seoul, the assembly plant employees who build GM Daewoo cars spend 15 minutes brushing off their work areas before the assembly line starts. Han sweeps the sidewalk near the main entrance with a 2-foot-wide straw broom.
``Every leader should set an example like this,'' Han, 57, says. ``Human beings cannot change other human beings directly by shouting at them.''
Only 34 Westerners
Bupyung and GM Daewoo headquarters have 9,400 workers. The complex employs only 34 Westerners like Reilly, a native of North Wales in the U.K. who was transferred to Seoul in 2001 from GM's Vauxhall Motors Holdings Ltd. in Luton, England.
A few steps away from the assembly building, GM runs the engineering site, its most complete product development center in Asia. Its prototype assembly shops, crash test center, metallurgical lab and metal boxes for testing cars in freezing temperatures and searing heat are all located in one building, up or down a few flights of stairs from each other.
The engineering center can design safety upgrades such as adding air bags to a car model in three to five months, as little as one-third of GM's global average of nine months to a year.
Employees put in hours beyond their shifts to complete projects, Reilly says, while making half the pay of workers in Detroit. While GM wouldn't disclose U.S. salaries for engineers, David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan, says it averages about $85,000 a year.
`Nights and Weekends'
``They work nights and weekends because they know that every day they're missing is a missed day of sales,'' Reilly says.
When taking part in collaborative projects, GM Daewoo engineers sometimes grow frustrated that their counterparts in Detroit don't respond faster to questions, he says.
The engineering center maintained its technical edge even after almost half of the workforce left during the bankruptcy, says Sohn Dong Youn, 48, who runs the prototype engineering area. The most important innovation, learned from studying automakers in Japan and Europe, lies in the metal fixtures of various sizes the engineers design and make to clamp metal body panels in place while cars are welded, he says.
Bupyung makes fixtures to hold metal body panels in only one position, Sohn says. Most other GM clamping devices around the world allow so much variation that the engineers have to come up with tools to measure the fixtures as well as design them.
Like a Mantra
``Here, there is no checking of fixtures,'' Sohn says often, almost like a mantra. ``No checking of fixtures.''
In the engineering center, Sohn uses lasers to measure 1,300 surface locations around prototype cars for PIST, or percentage of important points that satisfy tolerances.
As a result of the engineering, 90 percent of surface locations at Bupyung typically fall within prescribed tolerances, more than the 87 percent for automakers in Europe and just behind the 92 percent for car companies in Japan, Sohn says, citing GM data. In North America, which uses a different measuring system, 85 percent of surface locations fall within prescribed tolerances, according to Sohn.
The engineering precision makes small cars feel more solid and control better, says McGarry, the GM executive director. GM says that helped GM Daewoo boost sales 18.8 percent to 507,900 cars worldwide in the first six months of 2005, more than three times GM's global growth rate of 5.3 percent to 4.7 million.
GM Daewoo had a loss of $100 million last year as the company expanded and improved plants, Reilly says.
Central to Future
GM Daewoo sold about 10 percent of its cars under the GM Daewoo brand, which it uses only in Korea. The company sold 70 percent of its cars as Chevrolets in the U.S., Europe and markets that GM considers central to its future, including Brazil, China, Poland, Russia and Thailand.
The Aveo leads its sales category in the U.S. because it's a solid model for the relatively low price of less than $10,000. It's also popular in an emerging economy like China where it's considered a standard family car, says Fritz Henderson, 46, chairman of GM in Europe, who oversaw GM Daewoo when he was head of the company's Asia-Pacific unit from 2002 to 2004.
GM sold 1.06 million vehicles in Europe in the first half of 2005, an increase of 2.3 percent from a year earlier. Chevrolet sales rose 25 percent in the period to 117,000 vehicles on increased demand in Central and Eastern Europe and as Korean- built Chevrolets were introduced in Russia.
First Quarterly Profit
From April through June, GM Daewoo cars contributed to GM Europe's making its first quarterly profit, $37 million, in five years. The profit excluded a $126 million charge to cut as many as 12,000 jobs.
GM Daewoo also provided a pipeline of small cars, allowing Wagoner to sell in February a 10 percent stake he had taken in Turin, Italy-based Fiat SpA's auto unit in 2000, the Center for Automotive Research's Cole says.
As part of the sale, GM paid $2 billion to end an agreement that could have forced it to buy the rest of Fiat's auto unit. ``GM Daewoo is turning out to be a real gem,'' Cole says.
Alois Chassot agrees. The salesman in an organic food store in Chambery, in the French Alps, bought a red Chevy Kalos built in Korea for 10,100 euros ($12,355) in July.
Chassot, 23, says he bought the car partly because Chevrolet included at no charge an engine that runs on either liquefied petroleum gas or gasoline; such engines usually cost 2,800 euros extra. He'll also get a 1,525-euro tax credit from the French government for buying a ``low-pollution'' car.
`The Chevrolet Brand'
``The Chevrolet brand really reassures me,'' Chassot says. ``I know they build a lot of four-by-fours. It gives me more confidence to have that name on there rather than a Korean name like Daewoo, even if I know that's silly.''
In June, GM and Shanghai Automotive opened a factory in Shanghai to assemble 160,000 Buick Excelle sedans annually from kits of parts provided by GM Daewoo. GM Daewoo also wants to buy or build an assembly plant in India, Reilly says.
In total, GM Daewoo expects to sell 1.5 million vehicles annually by 2008, more than the 1.05 million projected for this year and the 405,673 sold in 2002, the year GM took over, Reilly says. To accommodate this growth, the company has increased its engineering staff in Bupyung by 43 percent, to 2,000, and expects to hire 300 more engineers in coming months.
To maintain this pace, GM Daewoo needs to learn about making big cars from GM. Next year, GM Daewoo plans to introduce its first-ever SUV, with a four-wheel-drive design that GM gave to GM Daewoo, Reilly says.
Auto Designer
GM also assigned an auto designer to GM Daewoo, which like other Korean automakers had tended to rely on a contract design house from Italy.
Dave Lyons, GM's executive director of Asia-Pacific design, says his job in Seoul is to help transform Chevrolet, along with the excitement of 1970s-era muscle-car models like the Chevelle, into a brand with global resonance.
``Chevrolet is the main growth brand for China, and most of the products will be developed here,'' Lyons, 36, says.
In July, GM designated Bupyung as the lead engineering center for its next generation of Opel and Chevrolet subcompacts. Global sales may total 800,000 annually, Reilly says.
Bupyung is also building prototypes for a small, front-wheel- drive SUV for sale in Korea next year. Derivatives of this SUV may one day be sold in the U.S., Europe and China under GM's Cadillac, Chevrolet, Pontiac, Saab and Saturn nameplates, with global sales topping 600,000 by 2010, CSM Worldwide's Robinet says.
Corporate raider Kirk Kerkorian said on May 4 he was increasing his GM stake to 7.2 percent of the company's stock.
Cash Consumption
His presence and GM's cash consumption are putting pressure on GM's management to improve, Casesa says.
The company's automotive unit will burn through $4.6 billion in cash during 2005, Casesa says. That compares with Chief Financial Officer John Devine's initial prediction in January of $2 billion in positive cash flow for the year.
Kerkorian, 88, can prod the company's management to cut North American costs, says David Giroux, an analyst at Baltimore- based T. Rowe Price Group Inc., which owns 4 million GM shares.
Not all investors share that optimism. Philadelphia-based Delaware Investments, which has about $100 billion in assets, sold 1.9 million GM shares during the second quarter after spending five years acquiring the stock.
High gasoline prices may lower demand for GM's full-size SUV, even as Japanese automakers such as Toyota boost sales, says Jim Wright, an analyst at Delaware Management.
Lee Iacocca, former chairman of Auburn Hills, Michigan-based Chrysler Corp., says GM is just emerging from an era in which the company was dominated by so-called bean counters, executives who can keep track of money but can't build cars.
``The great engineers at GM were sort of junior varsity,'' Iacocca, 80, says.
To help change that tradition, Wagoner is relying on a center of engineering excellence in a nondescript Seoul suburb. If the far-flung experiment continues to succeed, the unit that Wagoner rebuilt from a Korean bankruptcy may help prevent him from having to repeat the process in North America.
http://quote.bloomberg.com/apps/news...fer=news_index
The lab isn't based at GM's Detroit headquarters; it's a five-story edifice that's part of a square-mile complex of worn brick and concrete buildings in the Bupyung district of Inchon, South Korea, located 15 miles (24 kilometers) southwest of Seoul and hidden in a maze of identical white apartment towers that reach to the horizon in all directions.
GM got the Bupyung complex when it paid creditors of bankrupt Daewoo Motor Co. $251 million in 2002 -- a deal that Ford Motor Co. had passed up. Today, GM says that Bupyung engineers, who design, build and test prototype cars, are 20 percent more efficient than their U.S. counterparts. They also work for half of the $85,000 annual pay of Detroit engineers and toil nights and weekends.
The techniques they design for building $9,995 subcompact cars are so precise that GM, the world's largest automaker by sales, says it will adapt them to the $45,000 sport utility vehicles it will sell next year in North America to take full advantage of the GM-Daewoo union.
``It was a marriage made in heaven,'' says Michael Robinet, an analyst at CSM Worldwide in Farmington Hills, Michigan. ``GM needed low-cost development capabilities in Asia, and Daewoo needed stability and an external market.''
Junk-Bond Status
GM Chief Executive Officer Rick Wagoner, 52, whose company tumbled to junk-bond status in May as it discounted cars in the U.S. as much as 29 percent to clear bloated inventories, is relying more on overseas factories such as Bupyung to boost sales abroad.
GM's North American auto business, hemorrhaging cash, had a loss of $2.98 billion in the first half of 2005 to cap a miserable five years in which the company's stock plunged 71 percent.
GM cars made with Daewoo, sold as Chevrolet Aveos, became the best-selling subcompacts in the U.S. in the first half of this year, surpassing Hyundai Motor Co.'s Accent. The Aveo also contributed to sales gains in Korea, China and Europe.
``GM Daewoo is like a seed that they've planted and that they're germinating,'' says Wil Stith, a portfolio manager at MTB Investment Advisors in Baltimore, who helps manage about $2 billion in fixed-income assets, including GM debt. ``The future growth for GM is definitely in Asia.''
$3 Billion Investment
By the middle of 2006, GM will have invested $3 billion into GM Daewoo Auto & Technology Co., the Inchon-based company that controls the plant and runs the engineering center, GM's third- largest among 11 worldwide, says Nick Reilly, 55, GM Daewoo's CEO.
By 2012, the Asia-Pacific region may be as important to GM as the U.S. or Europe, Reilly says. GM must make that a reality to avoid plunging into a profitless pit by decade's end, says John Casesa, a Merrill Lynch & Co. auto analyst in New York. ``Capitalizing on growth in Asia through Daewoo is essential if GM is to achieve a profitable mix of businesses,'' Casesa says. ``They can't do it by just cutting costs in North America.''
GM now considers GM Daewoo the company's leader in engineering the alignment of metal body parts, a process that makes cars sturdier, more responsive and more attractive to buyers, says Mike McGarry, 51, GM's Warren, Michigan-based executive director of vehicle bodies.
The company is studying ways to adopt GM Daewoo's methods for making hoods, fenders and headlights join in a radius of 2 millimeters (0.08 inch), one-third of the 6 millimeters on past GM models, McGarry says.
`Jewellike Features'
``Some of the jewellike features that GM Daewoo executed, we spent time trying to learn exactly how they do that and how to apply that learning to our programs in North America,'' he says.
The better alignment may help sell as many as 300,000 redesigned versions of GM's largest SUVs in North America during 2006, says Michael Bruynesteyn, an analyst at Prudential Securities Inc. in New York. A sleeker look and better handling will help the company avoid losing sales as it reduces its average discount of $5,860 by an estimated $3,000 next year, Bruynesteyn says.
GM has yet to announce discounts on the Chevrolet Tahoe and Cadillac Escalade full-size SUVs. GM will give financial analysts their first look tomorrow at trucks and SUVs that will replace models such as the Chevrolet Suburban next year, in a multibillion-dollar gamble that Americans paying record high gasoline prices still want large trucks.
$51 Billion in Revenue
The current models generate about $51 billion in revenue a year, according to Burnham Securities Inc. analyst David Healy -- more than the sales at three-fourths of the companies in the Standard & Poor's 500 Index.
The automaker had said little about the new trucks, known internally as the GMT900 line and which include the GMC Sierra pickup and Escalade and Tahoe SUVs. GM has claimed that they will be more fuel efficient than the models of pickups and SUVs they replace. The U.S. price for a gallon of regular unleaded gasoline reached $2.612 a gallon last week.
GM discounted nine of its 76 North American models more than 20 percent in July, led by the 29.6 percent price cut on the Saab 9-2X, according to Santa Monica, California-based Edmunds.com, which tracks automaker incentives for consumers. Carmakers don't release rebate data.
The discounts helped push down revenue 2.9 percent to $94.3 billion in the first half of 2005.
DaimlerChrysler
GM shares fell 15 percent to $34.04 in the year through Aug. 29 compared with a 19 percent gain in DaimlerChrysler AG stock and a 0.3 percent advance in the Standard & Poor's 500 Index.
GM shares peaked at $93.63 on April 28, 2000, and closed at $26.75 on April 28, 2005.
Standard & Poor's cut GM's rating on $196 billion of debt to BB, two levels below investment grade, on May 5. The spread on GM's 8.375 percent bonds maturing in 2033 widened to 519 basis points more than comparable U.S. Treasuries on Aug. 9 from 302 basis points on Dec. 31. A basis point is 0.01 percentage point.
``The sooner GM can use investments like Daewoo to develop overseas manufacturing and bring the lower costs inherent in that to bear in North America, the better,'' says Scott Colbert, who helps manage $7 billion, including GM bonds, at Commerce Bank Investment Management in St. Louis.
GM Daewoo produced about one in 10 of the vehicles GM sold worldwide in the first half of 2005, limiting the company's losses in its auto production outside North America to $94 million. In the first half, sales of GM Daewoo-built Chevrolets rose 67 percent in China and 22 percent in Southeast Asian nations such as Thailand.
Aveo Sales
Sales of the Aveo gained 66 percent in the U.S. to 35,245. That made it the country's best-selling subcompact, cars that are less than 14 feet (4.3 meters) long, according to CSM Worldwide. Subcompacts account for 1.2 percent of the 17.2 million vehicles sold in the U.S.
GM needs GM Daewoo to succeed because GM devotes fewer of its resources to engineering than its rivals, Casesa says. GM allocates 8 percent of its total revenue to capital spending and research, less than the 10.5 percent for Toyota City, Japan-based Toyota Motor Corp.
GM will redesign or replace 64 percent of its U.S. vehicle fleet from 2006 to 2009, less than the 90 percent for Toyota, Casesa says.
GM first formed a joint venture with Daewoo Motor in 1978 and abandoned it 14 years later amid concern that Daewoo Group founder Kim Woo Choong was taking on too much debt. Daewoo was Korea's second-largest group of industrial businesses, including shipbuilding, electronics and financial services as well as cars.
Cheap Korean Assets
Daewoo eventually failed in auto manufacturing because Kim used debt to build 14 new or joint venture factories in overseas countries such as China, India and Poland before attracting customers for his cars, Reilly says.
Automakers around the world started buying cheap Korean assets after July 1997, when Thailand scrapped its policy of pegging its currency to the U.S. dollar, a change that forced Indonesia, Malaysia and the Philippines to follow.
South Korea agreed to a $57 billion international bailout organized by the International Monetary Fund in December 1997. GM entered into negotiations to buy Daewoo in 1998 under then Chairman John F. Smith. Kim fled the country in 1999.
In 2000, DaimlerChrysler took a 10 percent stake in Seoul- based Hyundai, the country's largest automaker. Renault SA, based in Boulogne-Billancourt, France, took a 70 percent stake in the automobile division of Seoul-based Samsung Group.
Ford Offer Withdrawn
Ford offered $6.9 billion for Daewoo in June 2000 and withdrew its offer three months later after examining the company's books. DaimlerChrysler, based in Stuttgart, Germany, sold its 10 percent stake in Hyundai last year.
GM's talks with Daewoo dragged on because Smith and then President Wagoner said at the time they needed to assess the value of the assets, including the Bupyung plant. As GM negotiated in March 2001 to buy bankrupt Daewoo Motor, then Korea's second-largest automaker, labor activists protested job cuts by attacking GM's office in Seoul with fire bombs.
A month earlier, hundreds of union workers had clashed with riot police outside the gates of the Bupyung complex.
In November 2002, GM and Suzuki Motor Corp., the Hamamatsu, Japan-based automaker in which GM owns a 20 percent stake, along with joint venture partner Shanghai Automotive Industry Corp. of Shanghai and a group of Korean banks, paid a combined $1.17 billion for most of Daewoo's assets.
Shanghai Automotive
For its $251 million, GM received 42.1 percent of the company. Today, GM has 50.9 percent, Suzuki owns 11 percent and Shanghai Automotive holds 9.9 percent.
Kim returned to Seoul in June 2005, at age 68, to seek treatment for an ailing heart. Korean prosecutors indicted him two weeks later for exaggerating the group's assets by 41 trillion won ($39.8 billion) and borrowing 10 trillion won on the basis of the inaccurate accounting.
In surrendering to authorities, Kim said in a statement: ``I am solely responsible for Daewoo Group's inability to overcome the financial crisis. I will accept the appropriate consequences.''
The only assets at the Bupyung complex that GM doesn't yet own are two Daewoo vehicle assembly buildings, though the automaker controls the processes and has installed equipment developed at the nearby GM Daewoo engineering center.
GM upgraded the assembly buildings because it had committed to buying them from Daewoo Inchon, plant manager Han Ik Soo says.
Assembly Lines
GM Daewoo says it plans to buy the assembly lines, which are already operating like other GM factories worldwide, by the end of the year.
The only difference has been that GM has paid Daewoo Inchon to assemble the cars.
GM's steady investment in the engineering center and in the manufacturing buildings has encouraged assembly employees to cooperate with GM management, Reilly says.
Productivity on the Bupyung assembly line that makes the Aveo has climbed 21 percent to 18.6 hours per vehicle this year from 2000, Han says.
Each morning at the complex, located in the same city as the Inchon International Airport that serves Seoul, the assembly plant employees who build GM Daewoo cars spend 15 minutes brushing off their work areas before the assembly line starts. Han sweeps the sidewalk near the main entrance with a 2-foot-wide straw broom.
``Every leader should set an example like this,'' Han, 57, says. ``Human beings cannot change other human beings directly by shouting at them.''
Only 34 Westerners
Bupyung and GM Daewoo headquarters have 9,400 workers. The complex employs only 34 Westerners like Reilly, a native of North Wales in the U.K. who was transferred to Seoul in 2001 from GM's Vauxhall Motors Holdings Ltd. in Luton, England.
A few steps away from the assembly building, GM runs the engineering site, its most complete product development center in Asia. Its prototype assembly shops, crash test center, metallurgical lab and metal boxes for testing cars in freezing temperatures and searing heat are all located in one building, up or down a few flights of stairs from each other.
The engineering center can design safety upgrades such as adding air bags to a car model in three to five months, as little as one-third of GM's global average of nine months to a year.
Employees put in hours beyond their shifts to complete projects, Reilly says, while making half the pay of workers in Detroit. While GM wouldn't disclose U.S. salaries for engineers, David Cole, chairman of the Center for Automotive Research in Ann Arbor, Michigan, says it averages about $85,000 a year.
`Nights and Weekends'
``They work nights and weekends because they know that every day they're missing is a missed day of sales,'' Reilly says.
When taking part in collaborative projects, GM Daewoo engineers sometimes grow frustrated that their counterparts in Detroit don't respond faster to questions, he says.
The engineering center maintained its technical edge even after almost half of the workforce left during the bankruptcy, says Sohn Dong Youn, 48, who runs the prototype engineering area. The most important innovation, learned from studying automakers in Japan and Europe, lies in the metal fixtures of various sizes the engineers design and make to clamp metal body panels in place while cars are welded, he says.
Bupyung makes fixtures to hold metal body panels in only one position, Sohn says. Most other GM clamping devices around the world allow so much variation that the engineers have to come up with tools to measure the fixtures as well as design them.
Like a Mantra
``Here, there is no checking of fixtures,'' Sohn says often, almost like a mantra. ``No checking of fixtures.''
In the engineering center, Sohn uses lasers to measure 1,300 surface locations around prototype cars for PIST, or percentage of important points that satisfy tolerances.
As a result of the engineering, 90 percent of surface locations at Bupyung typically fall within prescribed tolerances, more than the 87 percent for automakers in Europe and just behind the 92 percent for car companies in Japan, Sohn says, citing GM data. In North America, which uses a different measuring system, 85 percent of surface locations fall within prescribed tolerances, according to Sohn.
The engineering precision makes small cars feel more solid and control better, says McGarry, the GM executive director. GM says that helped GM Daewoo boost sales 18.8 percent to 507,900 cars worldwide in the first six months of 2005, more than three times GM's global growth rate of 5.3 percent to 4.7 million.
GM Daewoo had a loss of $100 million last year as the company expanded and improved plants, Reilly says.
Central to Future
GM Daewoo sold about 10 percent of its cars under the GM Daewoo brand, which it uses only in Korea. The company sold 70 percent of its cars as Chevrolets in the U.S., Europe and markets that GM considers central to its future, including Brazil, China, Poland, Russia and Thailand.
The Aveo leads its sales category in the U.S. because it's a solid model for the relatively low price of less than $10,000. It's also popular in an emerging economy like China where it's considered a standard family car, says Fritz Henderson, 46, chairman of GM in Europe, who oversaw GM Daewoo when he was head of the company's Asia-Pacific unit from 2002 to 2004.
GM sold 1.06 million vehicles in Europe in the first half of 2005, an increase of 2.3 percent from a year earlier. Chevrolet sales rose 25 percent in the period to 117,000 vehicles on increased demand in Central and Eastern Europe and as Korean- built Chevrolets were introduced in Russia.
First Quarterly Profit
From April through June, GM Daewoo cars contributed to GM Europe's making its first quarterly profit, $37 million, in five years. The profit excluded a $126 million charge to cut as many as 12,000 jobs.
GM Daewoo also provided a pipeline of small cars, allowing Wagoner to sell in February a 10 percent stake he had taken in Turin, Italy-based Fiat SpA's auto unit in 2000, the Center for Automotive Research's Cole says.
As part of the sale, GM paid $2 billion to end an agreement that could have forced it to buy the rest of Fiat's auto unit. ``GM Daewoo is turning out to be a real gem,'' Cole says.
Alois Chassot agrees. The salesman in an organic food store in Chambery, in the French Alps, bought a red Chevy Kalos built in Korea for 10,100 euros ($12,355) in July.
Chassot, 23, says he bought the car partly because Chevrolet included at no charge an engine that runs on either liquefied petroleum gas or gasoline; such engines usually cost 2,800 euros extra. He'll also get a 1,525-euro tax credit from the French government for buying a ``low-pollution'' car.
`The Chevrolet Brand'
``The Chevrolet brand really reassures me,'' Chassot says. ``I know they build a lot of four-by-fours. It gives me more confidence to have that name on there rather than a Korean name like Daewoo, even if I know that's silly.''
In June, GM and Shanghai Automotive opened a factory in Shanghai to assemble 160,000 Buick Excelle sedans annually from kits of parts provided by GM Daewoo. GM Daewoo also wants to buy or build an assembly plant in India, Reilly says.
In total, GM Daewoo expects to sell 1.5 million vehicles annually by 2008, more than the 1.05 million projected for this year and the 405,673 sold in 2002, the year GM took over, Reilly says. To accommodate this growth, the company has increased its engineering staff in Bupyung by 43 percent, to 2,000, and expects to hire 300 more engineers in coming months.
To maintain this pace, GM Daewoo needs to learn about making big cars from GM. Next year, GM Daewoo plans to introduce its first-ever SUV, with a four-wheel-drive design that GM gave to GM Daewoo, Reilly says.
Auto Designer
GM also assigned an auto designer to GM Daewoo, which like other Korean automakers had tended to rely on a contract design house from Italy.
Dave Lyons, GM's executive director of Asia-Pacific design, says his job in Seoul is to help transform Chevrolet, along with the excitement of 1970s-era muscle-car models like the Chevelle, into a brand with global resonance.
``Chevrolet is the main growth brand for China, and most of the products will be developed here,'' Lyons, 36, says.
In July, GM designated Bupyung as the lead engineering center for its next generation of Opel and Chevrolet subcompacts. Global sales may total 800,000 annually, Reilly says.
Bupyung is also building prototypes for a small, front-wheel- drive SUV for sale in Korea next year. Derivatives of this SUV may one day be sold in the U.S., Europe and China under GM's Cadillac, Chevrolet, Pontiac, Saab and Saturn nameplates, with global sales topping 600,000 by 2010, CSM Worldwide's Robinet says.
Corporate raider Kirk Kerkorian said on May 4 he was increasing his GM stake to 7.2 percent of the company's stock.
Cash Consumption
His presence and GM's cash consumption are putting pressure on GM's management to improve, Casesa says.
The company's automotive unit will burn through $4.6 billion in cash during 2005, Casesa says. That compares with Chief Financial Officer John Devine's initial prediction in January of $2 billion in positive cash flow for the year.
Kerkorian, 88, can prod the company's management to cut North American costs, says David Giroux, an analyst at Baltimore- based T. Rowe Price Group Inc., which owns 4 million GM shares.
Not all investors share that optimism. Philadelphia-based Delaware Investments, which has about $100 billion in assets, sold 1.9 million GM shares during the second quarter after spending five years acquiring the stock.
High gasoline prices may lower demand for GM's full-size SUV, even as Japanese automakers such as Toyota boost sales, says Jim Wright, an analyst at Delaware Management.
Lee Iacocca, former chairman of Auburn Hills, Michigan-based Chrysler Corp., says GM is just emerging from an era in which the company was dominated by so-called bean counters, executives who can keep track of money but can't build cars.
``The great engineers at GM were sort of junior varsity,'' Iacocca, 80, says.
To help change that tradition, Wagoner is relying on a center of engineering excellence in a nondescript Seoul suburb. If the far-flung experiment continues to succeed, the unit that Wagoner rebuilt from a Korean bankruptcy may help prevent him from having to repeat the process in North America.
http://quote.bloomberg.com/apps/news...fer=news_index
08-30-2005, 05:10 PM
#4
Moderator Alumnus
Originally Posted by JesusJuice
cliffnotes?
The next Corvette will have a Korean made 2.0L I4 engine producing 138HP.
Or
The GM - Daewoo partnership is a good match and will help both companies especially GM.
08-30-2005, 05:14 PM
#5
I feel the need...
Thread Starter
Originally Posted by Silver™
The next Corvette will have a Korean made 2.0L I4 engine producing 138HP
By then gas will be over $5 bucks per gallon, so this prediction may hold true.
with JJ
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