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Made In Korea, Assembled In China


As global auto makers start to export from China, you'd think Korea's car manufacturers might be feeling a bit squeezed. Korea, after all, has seen jobs in traditional industries such as electronics manufacturing, steel, and petrochemicals move across the Yellow Sea. Yet execs and workers at Incheon-based GM Daewoo Auto & Technology Co. celebrated when General Motors Corp. (GM) opened a new factory in Shanghai in June. The reason: The 160,000 Buick Excelle compacts the plant will produce annually will all be made from GM Daewoo kits -- the key parts for the car -- shipped in from Korea. "This is the start of a very successful partnership," says Alan S. Batey, GM Daewoo's sales and marketing chief.

In fact, GM Daewoo may be the biggest beneficiary of GM's rapid growth in China. That's because cars developed by the now-defunct Daewoo Motor -- which GM took over in 2002 -- are the cornerstone of the auto maker's small-car strategy on the mainland. GM has sold 9,000 Chevrolet Epicas, a $21,000 sedan based on the Daewoo Magnus, since its China debut in April. And the $6,000 Chevy Spark -- based on the Daewoo Matiz -- saw its sales in China quadruple in the first half, to 12,612. "The growth potential [in China] is huge," says Son Byung Hak, who heads GM Daewoo's kit sales.

The real standout has been the Excelle. Based on the Daewoo Lacetti, the Excelle accounted for 46% of all passenger cars sold by GM's joint venture with Shanghai Automotive Industry Corp. in the first half of this year -- and helped make the venture China's top-selling carmaker. "The Excelle is cool," says Liu Bin, a 27-year-old tour guide who bought the $18,100 Buick in March. "It's fashionable, performs excellently, and came with two air bags and a sunroof."

Today, GM Daewoo's kit operations are its fastest-growing business. While sales within Korea increased by a scant 3.5% in the first half of this year from a year earlier, to 53,438, kit shipments to China soared 63% to 96,351. One reason is that kits incur lower tariffs. GM Daewoo pays a levy of 11% on the Excelle kits, for instance, vs. 30% for finished vehicles. Globally, GM Daewoo exported nearly 210,000 kits in the first half -- up 32.1% over the year-earlier period -- while shipments of complete cars rose 10.6%, to more than 244,000.

LOCAL HEROES

Even the wild, debt-fueled expansion that ultimately led to Daewoo's demise is helping boost kit sales. Daewoo built factories in such far-flung locations as Uzbekistan, Ukraine, and Romania. When GM bought what was left of Daewoo Motor, it wanted only the company's Korean operations and a plant in Vietnam. Nonetheless, a half-dozen others were salvaged by local investors and continue to build Daewoos using kits from Korea. Plants in Thailand, India, Colombia, and Venezuela also use GM Daewoo kits. All told, the company says it expects worldwide sales of both cars and kits this year to top 1 million vehicles, up from 405,673 when GM took over. That makes GM Daewoo one of the best-performing units of the troubled Detroit auto maker.

China, though, is likely to provide the most pickup for GM Daewoo. The company expects kit sales there to grow by at least 30% annually for the next few years. One big contributor could be a new four-door Chevy Aveo subcompact designed by Daewoo, which will be introduced this winter for the fastest-growing piece of the market -- small cars under $12,000. "With China, we expect that we'll continue to gain momentum," says Batey. That momentum might slow as China's auto industry develops, but for now this Korean carmaker isn't feeling squeezed by China at all.

By Moon Ihlwan in Seoul, with Dexter Roberts in Beijing


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