GM Daewoo Venture Feeling Global Economic Turmoil
February 2009
STANFORD GRADUATE SCHOOL OF BUSINESS —The new electric Chevy Volt will be built in Michigan, but the cells for its battery pack will come from South Korea. That’s just one example of how much General Motors Corp. is relying on its South Korean GM Daewoo Automotive & Technology venture, said President and CEO Michael A. Grimaldi.
Grimaldi spoke as part of the Global Speaker Series at the Stanford Graduate School of Business on Feb. 20 about how his unit has become an integral part of General Motor’s operations around the world. The joint venture, of which GM owns 51 percent, has $14 billion in sales and 20,000 employees.
Grimaldi has headed up the South Korean company since 2006. He has spent 33 years with GM, since receiving his MBA at the Business School in 1976.
GM Daewoo, along with its parent company, is facing tremendous financial challenges. As is General Motors, it is seeking government assistance to help it fund new models and improve production lines. The South Korean Economy Ministry has hinted that it may draw up a supplementary budget to aid the nation’s sinking auto, steel, and shipbuilding industries.
"We have approached the Korean government for financial support to bridge the next couple of years," Grimaldi said, adding that the unit has an aggressive new vehicle development plan but is facing tight credit markets. "We're no different from other Korean companies. Otherwise, we will have to significantly scale back our business."
GM bought the automotive assets of the former Daewoo Group out of bankruptcy in 2002. Other partners in the venture are Suzuki Motor Corp., the Korean Development Bank (KDB), and the Shanghai Automotive Industry Corp. Daewoo Group was once one of the few profitable overseas subsidiaries of the U.S. auto giant, but according to Korean news reports it has used up nearly all of its $2 billion credit line from KDB.
January vehicle sales dropped more than 50 percent, GM Daewoo reported earlier this month, prompting some plant shutdowns.
GM Daewoo specializes in making mini and small cars at five plants in South Korea; it also provides kits for assembling GM products at facilities in Vietnam, China, India, and Thailand. Ninety percent of the cars are exported; it has only about a 10 percent share of the Korean car market. Last year it sold 1.9 million units.
"GM Daewoo is an important part of GM’s growth," Grimaldi said. It is a significant seller to emerging markets such as Brazil, Russia, India, Thailand, and China, countries that General Motors has identified as part of its global strategy.
GM Daewoo is playing a key part in three Chevrolet concept cars: the Groove, the Trax, and the Beat. The cars were designed in South Korea with GM’s global product development process, which ensures they have elements that can be targeted to any international market. The Beat, which Grimaldi describes as "fun, fashionable, and breaks the model of what people think of a mini," is scheduled to start production in Korea this summer. It will be sold in Europe and India, and news reports place it in the United States under the name the Spark in 2011.
GM Daewoo's partner, LG Chem, is supplying the cells to the Volt battery pack, but the battery and the car itself are being built in Michigan. The midsize car will go 40 miles on a charge before a gas-driven generator kicks in.
Meanwhile, General Motors is reeling under the weight of pension and health care costs and is looking for a federal bailout. Grimaldi said bankruptcy would deal a fatal blow to GM sales. "We are not sure we could survive and come out," he said. "We have decided to try and restructure as we are doing—fewer products, fewer manufacturing locations, and reducing headcount."
Grimaldi's appearance was part of the Global Speakers Series, organized by the Global Management Program.