Made-in-Korea Chevys for GM

General Motors' 2002 purchase of bankrupt Daewoo is looking smart as the Korean unit spearheads a drive to roll out smaller cars

by Moon Ihlwan

South Korean visitors look at various cars displayed at the Busan Motor Show 2008 in Busan on May 3, 2008. The Busan Motor show started May 3 and will run until May 12 with organizers expecting more than one million people will visit the biennial show. KIM JAE-HWAN/AFP/Getty Images

• View Slide Show

With oil prices in the stratosphere, Detroit's Big Three automakers are paying the price (BusinessWeek.com, 6/16/08) for concentrating so heavily on gas-guzzling trucks, SUVs, and luxury vehicles in the U.S. But General Motors (GM) executive Michael A. Grimaldi likes to point to one move that has turned out very well: The U.S. giant's takeover of major assets from bankrupt Daewoo Motor in 2002. The Korean operation is a crucial part of a global strategy that has enabled GM to tap local design and engineering talent specializing in smaller cars in Asia and Europe, giving GM a significant boost in small cars. Says Grimaldi, president and chief executive of GM Daewoo Auto & Technology, "It was a smart strategic decision."

For GM, the Korean subsidiary is growing in importance as North American consumers turn away from trucks and move back to smaller vehicles. The Korean team will spearhead GM's drive to roll out more fuel-efficient vehicles this fall. GM Daewoo is not only the hub for designing and developing mini and subcompact cars, but also the first manufacturer among all the company's brands to build the next-generation GM compact, a car based on a European-developed platform to be shared by the GM family.

A New Mini for Next Year

The new compact (BusinessWeek.com, 6/3/08) will replace the Chevrolet Lacetti and be shipped around the world. A U.S. variant will be built at GM's Lordstown (Ohio) plant beginning in mid-2010. The new Lacetti will be unveiled at the Paris Auto Show in October and be followed by the launch of two smaller high-mileage cars—both designed and developed in Korea.

Also making a debut next year will be a new mini based on the Beat, one of three concept cars GM unveiled at the New York Auto Show last year. GM Daewoo is developing a subcompact platform to replace the Chevrolet Aveo and the Corsa of Adam Opel, GM's European unit. The new Aveo and its variants, coming in 2010 to the U.S., Asia, and other parts of the world, are expected to lead their segment in fuel savings.

The compact marks a new beginning for GM, which celebrates its 100th anniversary in September. It will also be the first product that truly represents the company's new global vehicle development process. GM brands will share a platform developed by a designated hub for a certain segment, although there will be several variants catering to local tastes and needs. Under the scheme, Korea will be in charge of developing mini and small-car platforms; Europe the midsize and compact cars; Brazil the small trucks; and the U.S.—trucks, crossovers, and luxury vehicles.

Big Investment in Korean Unit

Few other countries offer better infrastructure for small cars than Korea. Balanced between standard-setting carmakers from high-cost Japan and low-cost Chinese makers with a reputation for subpar quality, GM Daewoo provides a sweet spot for GM, boast executives. "When you look at the growth that has occurred in China, other parts of Asia, Latin America, Central and Eastern Europe, and the type of products those markets were going to require, GM Daewoo was in the right spot," reckons Grimaldi.

The "just-right" formula for price and quality is proving a prosperous breeding ground for auto components. Korea is home to all but three of top 30 global part suppliers, and, in 2007, 17 local companies were selected from among GM's best part suppliers. That year GM Group purchased some $10 billion worth of parts from Korean suppliers, up from $2.6 billion in 2003.