Daewoo’s drive to survive in the UK

Daewoo, the distinctive car marque, was doing very nicely in the UK before its parent company was effectively declared bankrupt under court receivership proceedings.

Along with Hyundai, Daewoo was leading the tsunami of Korean motor companies deluging the UK with their product. Five years after its UK launch in 1995, Daewoo had seen its market share rise to 1.61 per cent – a colossal incursion from zero presence – according to figures released by the Society of Motor Manufacturers. Now, because of circumstances beyond its control, Daewoo’s UK subsidiary has been brought to its knees.

In South Korea, the parent company Daewoo Motor is relying on government hand-outs and is negotiating a takeover by General Motors (GM); its future hangs in the balance. Because of debts amounting to more than $17bn (£11.7bn), Daewoo has been rejected by GM once already and Ford also pulled out of talks. Observers and company insiders believe that, without aid from another car company, Daewoo’s chances of survival are slim.

As well as the bankruptcy of parent company Daewoo Motor, the UK business is having to cope with its first large-scale changes since its launch. It has back-tracked on the policy of owning its retail outlets and plans to sell cars through franchised dealerships. The UK company has also ousted its marketing chief, Pat Farrell, who was instrumental in devising the “hassle-free” and “haggle-free”, direct-sale policy that is unique to the UK.

Daewoo has the tough task in trying to convince 84 franchise dealers to take on the brand and sell it along side the 36 direct-owned sales outlets. Daewoo’s share of sales in the UK has plummeted by half to 0.77 per cent on the back of press reports of its parent company’s bankruptcy in South Korea. Any dealer would have to think very hard before it took on a brand that may not exist in the near future.

Daewoo launched in the UK with a radical sales policy, using its own salesrooms and consultants, turning its back on dealerships, which generally operate across the industry. Its policy was hassle-free car buying without traditional pushy dealers.

“It broke the mould,” says Bryan Brown managing director of Marketplace Design, which worked on the retail offering. “It was the first time leisure retailing had been done in the automotive sector.”

Professor Garel Rhys, director of Cardiff University’s centre for automotive research, says: “It gave Daewoo a very quick insertion into the UK, and it would have taken it years to build up a network of decent franchises. It took the Japanese companies like Toyota years before they had a good retail offering.”

But Daewoo’s direct sales policy backfired, says Rhys. He claims that the second-hand value of Daewoo cars has been undermined by the limited number of sales outlets, although this will change once the sales network has expanded through the addition of franchised dealerships.

Rhys says: “It will give people greater long-term security for resale value, and it will also show that Daewoo is the same as everyone else.”

Rhys and other industry observers believe Daewoo UK is making the right moves. But if a GM takeover cannot be secured, these same observers believe it will be curtains for Daewoo Motor and its assets will have to be sold off chunk by chunk to repay creditors.

“Professor Rhys is obviously well respected and knows what he is talking about,” says a company spokesman, “but no one here is packing up their boxes. We are very sure that even if the GM deal doesn’t come off, Daewoo will survive. It has made profits for the past four months and that is good news for the parent company and creditors.”

Given Farrell’s departure, Daewoo’s advertising agency, Duckworth Finn Grubb Waters, will not be sitting comfortably. Farrell appointed the agency to the business before the company’s UK launch and the two have enjoyed a close relationship since.

Daewoo’s advertising tagline – “That’ll be the Daewoo” – was one of the most memorable of the past ten years.

“It may not be the greatest adline in the world of advertising,” says the Daewoo spokesman, “but it certainly worked.” He adds that the company would be “crazy” to embark on a review of the business held by DFGW. “Now would not be a good time to start looking at advertising arrangements. Daewoo needs to work on its franchises, and when they are signed up, they are going to want to see advertising and lots of it.”

He claims the company is going to increase its advertising spend, which is currently £13m a year; £3m less than two years ago.

Farrell’s departure leaves Daewoo without a director solely responsible for marketing and sales in the UK – his role is being filled by various managers within the company. With no new marketing director pending, DFGW’s Daewoo business is safe for the time being.

Daewoo justifies its slip in market share on a change in company policy last year. “Daewoo got out of the fleet and the car rental markets because although they were boosting the market share, they were not making any money,” says the company spokesman.

With the assistance of a sales network that is to be boosted by the addition of franchised dealerships, the company aims to increase its market share to three per cent over the next three years. This would represent a similar percentage of the market to that currently held by Citroëand Nissan. But Daewoo’s target is ambitious as other companies, such as Nissan, partially rely on fleet sales to boost their market share.

Calls by Marketing Week to five of Daewoo’s stores around the UK confirm that things are not rosy. One depressed-sounding salesman says: “We have lost a lot of sales because people think we are bust, but we have a three-year guarantee, so customers are safe.”

Another adds that he thinks the GM deal may never happen, or if it does, it “could be another 12 months”.

Daewoo UK’s customer helpline, when called by Marketing Week, was equally open about the parent company’s financial woes.

Until a long-term future can be secured for its parent company, Daewoo UK will struggle to implement the retail changes necessary to make it as accessible to customers as other car companies.