Daewoo steers clear of trouble as Korea applies the brakes

I think there’s something deliciously unfashionable about owning a Daewoo – like living in Herne Hill, as I do, it scores no points with the chattering classes. The German marques are all media status symbols and the Japanese have a kind of alternative establishment with Toyota and Lexus. Daewoo, for all its success in Britain, is robustly image-resistant. I visited a Daewoo showroom over the Christmas break and much of what the ubiquitous advertising has drummed into us is true. You do feel less pressured and better informed by non-commission sales assistants. The prices are keen, because they deal direct through their own network rather than through franchisees. I test-drove a Leganza and the only thing I would criticise is the brochure copy that said that the name is derived from the Italian eleganza meaning elegance and forza meaning strength. No, it isn’t – it’s “eleganza” with the first letter knocked off. But no matter, it handled like a German car at about two-thirds of the price. And they are manufactured in Korea. Cue sinister music and zoom in on salesman’s sweaty face. Korea? So, if I buy one of these cars, I can expect to have it repossessed by a consortium of American commercial banks as and when South Korea defaults on its dollar debt-mountain, right? Unconcerned with vulgar commission considerations, the salesman I spoke to said that there had been no discernible depression in sales as a result of concerns over the Korean economy and added that Daewoo must be in growth mode because it had just taken a controlling stake in Ssanyong, another of these diversified Korean consumer engineering groups. So what is it with Korea? The pundits have been telling us for the past few weeks that the South Korean economy is about to fall around a hopelessly devalued currency – the Won – and take much of South-east Asia with it. After the Yamaichi experience in Japan, it looked all set for a multinational, televised, blubbing banker contest. One reason the South-east Asian economies haven’t fallen like a house of tarot cards is that the American banks can’t afford to let them do so. They have too much money tied up in the region. You could tell that Seoul is still holding the whip handle when it announced last week that it planned to auction two commercial banks next month to foreign and domestic investors, throwing the well-laid plans of the Americans to reschedule Korea’s $15bn short-term debt somewhat awry.

When you have the likes of Merrill Lynch, Citicorp, Chase Manhattan, JP Morgan, Bankers Trust, BankAmerica, Bank of New York and First Chicago hopping around at meetings in New York to take account of the implications of the Korean’s auction of assets, then you know that there is too much at stake for Korea to be allowed to disappear down the swaney with its Won. But the point is a bigger one than the Americans being up to their necks in Korean debt. Much has been made of the knock-on effect upon Western equities markets if Korean markets collapse. Meanwhile, the very same Western markets have resolutely and regularly bounced back from their bear legs of recent weeks. The FTSE 100 in London last week rose some 180 points in thin trading. At the risk of sounding like Michael Fish assuring you that a hurricane isn’t on the way, securities markets in London and New York are not behaving as though there is about to be a world collapse of equities triggered by a Korean crisis. The American banks (and the IMF) have had something of a Christmas crisis in having to prop up Korea, but just because they have been having a tough time of it doesn’t mean that their home markets need be unduly affected. South-east Asian markets were long overdue a correction – that does not mean that other equities markets have to follow, where the fundamental characteristics and strengths are different from those in Asia. It’s a problem for American banks, not for America, much as the banks would like to suggest that they are one and the same. Economies make banks, not the other way round. But what is to become of Korea and, more specifically, of Daewoo and its fellow Korean exporters? My guess is that the Korean car market is a paradigm for what happens when a manufacturer’s domestic currency collapses. Daewoo will simply become more aggressive in its overseas marketing, its foreign earnings being worth that much more at home. This is particularly true of its position in the UK market, which is likely to stall. New car sales roared ahead in 1997, but will slow considerably in 1998, according to a survey from Autoglass. The number of people planning to change cars has dropped by a third over the past year and just 24 per cent of UK motorists expect to buy a new or used vehicle over the next 12 months, compared with 36 per cent who said they would in December 1996. Daewoo, with its aggressive pricing and innovative after-sales marketing combined with the export incentive provided by a weak Won, could take a larger share of a shrinking market. I reckon you’ll get the best deals around the time of the new registrations in August.

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