Cielo – A Car In Trouble

BACKGROUND NOTE Contd..

Daewoo Motor's overseas expansions were funded largely on borrowed money. However, the company was unable to keep up the repayment on its debts. In 2000, after the company's labor unions refused to accept a restructuring plan for the company, Daewoo Motors was declared bankrupt and talks were initiated to look for a suitable buyer. GM again evinced interest in the venture amidst stiff opposition from the worker unions.

The low indigenisation level also translated into high costs of spares. Experts commented that the Cielo had been launched without any detailed market survey.

Daewoo began production of the Cielo at the Surajpur factory, originally built by the DCM-Toyota venture in 1985 to manufacture light commercial vehicles (LCVs).As the scale of operations increased substantially with not much modification to the plant, quality defects could not be completely avoided. Complaints of poor fuel efficiency soon surfaced. A Daewoo official from Korea remarked, “We had problems due to bad quality of fuel.” Media reports remarked that this had happened because Daewoo did not understand the Indian market properly. Daewoo sought to tackle this problem through its sales staff. However, the sales staff was reported as not being sufficiently trained to counter such problems. They simply could not react to consumer complaints.

Like most of the other automobile companies in the mid 1990s, Daewoo had been lured by the much talked about ‘Indian middle class market boom,'which never took off in reality. Daewoo had assumed that there was a huge pent-up demand for cars priced above Rs 0.5 million. The company also banked heavily on demand from the taxi/hotel car fleet and corporate segments. However, most of the above did not materialize the way Daewoo had planned. A Business India report revealed that most prospective Cielo buyers already owned an Esteem, and the decision to buy a second or third car could be postponed. The liquidity crunch due to the recession in the economy resulted in demand declining sharply - from the individuals as well as the taxi/hotel car fleet and corporate segments.

In late 1995, Daewoo realized that it needed to give Cielo a strong push to improve the sales. The company then devised a promotional campaign, called the ‘Diwali Bonanza scheme'for corporates, offering one Cielo free on purchase of every ten cars. This was followed up with a lottery scheme for individuals, wherein the winner was awarded a car. It was revealed later that the promotional scheme was pushed by Daewoo's marketing head from Korea inspite of the Indian managers vehemently opposing it. A former Daewoo executive said, “There was actually no need of the promotion. People began to look at the car with suspicion.”

^[1] DCM-Daewoo had signed a MoU with the Government to import CKD (completely knocked down kits).The MoU had to be signed since imports of CKD items for cars was banned and required a license.

2010, ICMR (IBS Center for Management Research).All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means - electronic or mechanical, without permission.

To order copies, call +91- 8417- 236667 or write to ICMR,
Survey No. 156/157, Dontanapalli Village, Shankerpalli Mandal,
Ranga Reddy District,
Hyderabad-501504. Andhra Pradesh, INDIA. Mob: +91- 9640901313, Ph: +91- 8417- 236667,
Fax: +91- 8417- 236668
E-mail: info@icmrindia.org
Website: www.icmrindia.org