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DMIL

By Marketing Research Team, 3EA
DMIL

Daewoo motors entered into India with Cielo (1500cc) in three versions (Cielo, Cielo GLE, Cielo GLX) in July 1995. Daewoo has ambitious plan for Indian operations as they had invested Rs 4000 crores in setting up a state-of-art manufacturing plants and research and development facilities at Greater Noida (Surajpur plans).

Company received booking order for 114000cars as it was only premium segment cars other than Esteem (Maruti) in India. Daewoo has major shock when 70000 customers cancelled their booking. Daewoo had predicted an annual sales of 1000 crores and sale of 20000 cars but managed to accomplish Rs 600 crores and 9044 cars, respectively. During April-Dec 1996 only 13776 ceilo were sold against target of 52000 cars. During April 1997-Feb 1998, 9006 Cielo were sold and in 1998-99 merely 5500 cars were sold in Indian market. Due to severe competition from GM and Ford and general downturn in the premium segment cars market Daewoo record a loss of 35 Crores in six month endedmarch 1998 while sales declined to Rs 122 crores from 270 crores in corresponding period in the previous years. Case study will throw some light on "where DMIL went wrong" and revival plans

Background:
Daewoo Motorsis a part of US$72 Billion of Daewoo group of Korea. In 1997, Daewoo motors entered in a joint venture with US auto major, General Motors. Later Daewoo realized that it has to look beyond the US and European market due to severe competition and high customer expectation. Therefore, the company decided to look into emerging markets in which vehicles demand was to increase and hence the profit margin. India emerged as the right destination for the Daewoo motors and beganwith Daewoo Motors taking over 50% stake held by japans Toyota in DCM Toyota and renamed the company Daewoo motors India Ltd. By 1998, Daewoo further raised its stake to 92%. Since the time it set up operations in India, the company has endeavored to introduce a product in every segment of the Indian passenger car market.

In India the group has invested Rs 4000 crores in setting up astate- of-the art manufacturing plan and research and development facilities. The huge investment made was intended to fulfill its demand for Daewoo cars in the world market. Thus, putting India in the global map of automakers, with large exports of critical components and completely built cars. One of the 3 lakhs engines, gearboxes and other components and completely manufactured at new facility, 50%of the total production from this plant is dedicated to export market around the world, making India an important sourcing base for worldwide operations.

Bad days:
Broadly the lack of focused approach on the inconsistent policy was the main cause of DMIL failure. However the pre-stage of the downfall had already begun when DMIL launched the car in the extremely hurried manner. The MoU was signed in October 1994 and first Ceilo rolled off the assembly line in July in 1995. In the beginning, Daewoo entered the market by high import content thereby not able to keep the prices lower than its competitors. It seemed that Ceilo had been launched without any detailed study. Since, Ceilo was manufactured in the DCM Toyota plants originally built for LCV, the poor fuel efficiency and technological defects were seen frequently. Daewoo official from Korea remarked, "We had problem due to bad quality of fuel." Moreover, the sales staff was also not sufficiently trained to answer the customers' complaints.

Segments Price Models
A 1.5 lakh to 2.5 lakh Omini, Maruti 800
B(mid size) 3 lakh to 5 lakh Santro, Zen,Matize,Palio, Wagon R,Alto.
C (premium) 5-8 lakh Esteem,Ceilo,Accent,Honda City, Coarsa,Ikon,Lancer.
D 10-17 lakh Sonata ,Accord,Mondeo,Camry
E(Sedan) 25 lakh and above Mercedese (E.S),Bently,Lexusetc.

While much talked about growing Indian middle class, Daewoo assumed that there was huge demand for premium segment cars priced 5 lakh and above, butdue to economic slumps and liquidity crunch the demand went sharply down- from individuals as well as taxi hotels cars fleet segments.

In the 1995, Daewoo realized that more aggressive plans were needed to boost the sale. Then company devised a promotion campaign, called "Diwali bonanza Scheme" for corporate, offering one Ceilo free on purchase of 10 cars. This was followed with a lottery scheme for individuals; wherein winner was awarded a car. This campaign created wrong pictures into the mind of the customers as they look at the cars a month, which fell to 100 cars a month by the time scheme ended in early 1996.

As the sales were declining every month, Daewoo then began offering financial incentives to its dealers and financiers, who in turn passed them on the customers through lower interest rates. Daewoo and its financers were even questioned by MRTP authorities to explain how its finance rates could be as low as 14 % while prevailing car finance rate was 23%.There were several schemes launched like test drive in April 1997 but that too failed in accordance with the previous ones.

Daewoo could not establish a positioning in the market as Ceilo began on a luxury plank "technology with aesthetics" and ended on "Val-you" note.
Daewoo needed higher sales to that unprecedented move; Daewoo reduced the price of the Ceilo by Rs 1.5 lakh in one go in Jan 1998. After this the GLE model cost Rs 4.9 lakhs in Delhi showrooms. This move took everybody for a surprise however S.G. Awasthi called it as "price correction," saying that price correction has been possible for the companies achieving higher indigenization and better foreign exchange management by the company. Immediately after the price cut, the company increased the sales by 906 cars per month in Jan and 1102 cars in February in march 1998 compared to 304 cars in December.Budget substantially increased and released the double paged advertisements in leading news dailies. But sales could not sustain for a longer period and by February 1996 sales fell to low of 148 cars per month.

In May 1999, Daewoo stopped the production of the GLE and GLX model and replaced them with Ceilo executive and Nexia. The move failed badly because the dealers as well as customer failed to see any significant addition to the earlier Ceilo models. Now the time Daewoo started focusing on the Matize, which showed a good growth in the beginning but could not shake the bad image of the Ceilo from the mind of the Customers. In 1999-2000, the company had loss of 116 cores on the gross sale of 1278 crore which further increased to 340 crores on a gross sale of Rs 1184 crores in 2000-01. Company has stopped production of Ceilo and Matize model, now.
Keeping in mind, the market, which is expected to touch one million mark by 2005-06, onecan't loose an opportunity to be part of that.

Revival plans: To reduce the cost of the capital company should reduce the debt burden first by way of selling some of the useless assets and have to find out the right partner to get the synergy in the competitive India market. As GM and Ford motors do not have any presence in mid size segments, therefore either of they could be the possible partner for the venture in India.

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Case Study by: Marketing Research Team, 3EA