SBHD: Daewoo is poised to revolutionise the UK car market. Not only will the firm’s unglamorous ads focus on price and service, but it hopes to hit rivals just where they are most vulnerable – through distribution. By Tom O’Sullivan
For a company that even in its own advertising says “you have never heard of us”, Daewoo Cars is about to make a big noise.
The subsidiary of the Korean shipbuilding to heavy engineering corporation begins its assault on the UK car market when its first cars go on sale on Saturday, April 1. But its impact threatens to go beyond shifting a few thousand motors in the most overcrowded car market in Europe.
Daewoo Corporation chairman Woo-Choong Kim has said he wants one per cent of the UK car market by the end of 1997 and is by all accounts a man who gets his way. The corporation produces 660,000 vehicles annually with a turnover of £31bn.
But a one per cent market share in two years would represent an unprecedented shift in a market where one per cent has a sales value of £180m.
The tradition for other importers has been to almost sneak into the UK apologetically. But Daewoo is breaking, rather than sneaking, in by fundamentally challenging the method of selling cars in the UK.
Ironically its first victims could be fellow Asian importers. To reach one per cent, the company will have to leapfrog its Korean counterparts Kia, and Hyundai, not to mention other rivals including Proton, Seat and Skoda.
The new arrival could have a fundamental impact on the way cars are sold and hence marketed in the UK. The franchised dealer/manufacturer relationship is the principle on which cars are sold in this country. Daewoo is cutting dealers out of the equation – other manufacturers privately admit they too would like to lessen their dependence on dealer networks if not eradicate them – crucially Daewoo has the financial muscle to do that.
It is coming to the market without any history. But if it fails, the dealer system, which is already set in stone, will be unassailable. If on the other hand Daewoo is successful, manufacturers could begin to dismantle or at least rationalise their dealer networks.
Daewoo is investing more than £10m in advertising through Duckworth Finn Grubb Waters and CIA Media. The initial ads were an attempt to raise awareness of the company but a series of seven ads, shot at a cost of £900,000, break next week concentrating on different aspects of the Daewoo “offer” rather than glamour shots of the cars themselves.
It is a determinedly different style of car advertising.
The company embarked on its mini-revolution in October announcing that it was investing £150m and opening 30 wholly-owned supermarket-style sites dubbed “Vision 2000” before the cars went on sale. But when the first Daewoo car is sold on Saturday only two of the out of town supermarket sites, now named Motor Shows – in Rotherham and Derby – will be open, raising questions about the company’s ability to deliver its promises.
It has developed a three-tier selling structure with the Motor Shows backed up by more conventional wholly-owned Car Centres and servicing through a deal with the 136-store Halfords group. But there will only be six Car Centres, although as many as 30 are planned, for the opening day and the Halfords deal has not yet been finalised.
A sales target of 6,000 has been set for the rest of 1995 but Daewoo is attacking the depressed retail end of the market with a restricted product range. Its Nexia and Espero models are based on the Vauxhall Astra and Cavalier – a throw-back to its former partnership with General Motors – and it will be 1997 before Daewoo has a full range based on its own designs.
Consequently its proposition is based on a mix of customer service and price. The Nexia will cost between £8,300 and £10,000, while the Espero will be priced at £10,700 to £12,000.
The strategic changes and the less than expected number of sales sites have been dismissed as part of a “flexible” policy.
“Nobody has ever launched a new marque with the whole structure in place,” says Daewoo Cars marketing director Pat Farrell, “there still could be 30 Motor Show sites, but at the end of the year we will look at our position and decide on the future direction. The strategy has evolved since October.
“The chairman had said he wanted one per cent as soon as possible and we needed some way of breaking into the market. It is a good product that represents value for money but the cars are not world shattering, at least not at the moment, and so we knew the breakthrough had to come from the way we sold them.”
The Daewoo strategy is designed to hit rival manufacturers at their most rigid and vulnerable point – distribution. Many are beholden on dealers to develop the brand image of the cars and as manufacturers have cut dealer margins – from an average 17 per cent to ten per cent – in the past three years the tensions have been only too obvious.
“There are so many weaknesses in the traditional approach,” says Farrell. “If the quality of the product is a given quality, the key area of competition becomes customer satisfaction, but often the money and effort manufacturers are putting in is wasted because franchised retailers and manufacturers pull in different directions.”
But not everybody is convinced. Many suggest the flexible strategy grew out of problems in building a traditional dealer network rather than a wider vision of the future of car marketing. “It has come in with a lot of promises,” says one importer, “and singularly failed to deliver. If there were better ways to do it then someone in the car industry would have thought of it.”
Leaving aside the confidence this particular importer has in the intellect available to the car industry it is true that Daewoo needs to fulfil its ambitions.
One of the key differences between it and other manufacturers has been its early communication with potential customers. It received 180,000 responses to the Daewoo Dialogue when it asked drivers what they wanted from a manufacturer – customer care came top of the list.
One group which has obviously watched the situation closely is the National Franchised Dealers Association. “Many of our members thought it represented the beginning of the end,” says its director Alan Pulham, when Daewoo made its original announcement. But now they are being more rational.
“Its initial marketing has been very clever – I can’t remember an importer coming into the market and communicating with so many people and acting on their views. They will find it hard, Hyundai has been here for ten years and is only now gaining credibility.”
Daewoo has no intention of waiting ten years. The roll out in the UK is being mimicked in other European markets. The company is investing in plant and also has its eyes on entering the US market in 1997. By then nobody will have an excuse for not having heard of Daewoo.