High Stakes in Battle Over Daewoo

The battle for possession of South Korea's Daewoo Motor Co. Ltd.-- fought mainly by General Motors Corp. and Ford Motor Co. -- may be as much about competing successfully in the U.S. market as it is about securing a foothold in Asia.

GM, Ford, Korea's Hyundai Motor Co. Ltd. and DaimlerChrysler AG all are bidding on the rights to acquire Daewoo, which is mired in $16 billion in debt and in desperate need of a white knight. GM and Ford, in particular, want to play that role, and they've stepped up the public relations campaign in Korea, promising to preserve Daewoo's autonomy, its jobs and its brand, if either of their acquisition bids is accepted by the government later this year.

GM and Ford want Daewoo to help them penetrate Asia, where each is hoping to snare a 10% share of new vehicle sales by 2005. But the role Daewoo would play for either right here in North America shouldn't be overlooked.

When Hyundai, the first to arrive, began selling cars in the U.S. in 1986, most U.S. auto executives feared the lower-cost Koreans would take over the entry-level car market. That didn't happen, in part because Hyundai's shoddy quality left many potential buyers cold. Of those that did purchase Hyundais, few were repeat customers.

But Korean quality has improved, and Hyundai has used aggressive 10-year powertrain warranties and free service programs to help remove any lingering doubt U.S. consumers may have over durability of the imported cars. With Kia and Daewoo now selling here in the U.S., as well, the lower end of the market may very well be falling into the hands of the Koreans.

Daewoo sales are up 313% so far this year, and combined Hyundai and Kia deliveries have risen 56%. Together, the three Korean brands are expected to account for 2.3% of U.S. new light vehicle sales this year. And all three are planning aggressive new product assaults, looking to take their price advantage strategy into more profitable segments such as midsize sedans, sport/utility vehicles and minivans.

By the end of this year, there will be an estimated 1,400 retail outlets selling Korean vehicles in the U.S. -- about as many as Honda and Mitsubishi combined.

Pressed on what gives his company a $2,000 price advantage here, Kia America marketing chief Dick Macedo admits, "It's labor cost."

U.S. automakers may feel they need Daewoo just to level that playing field.

GM already has decided it's not worth throwing much money into a re-do of its youth-targeted Chevrolet Cavalier/Pontiac Sunfire small cars any time soon. Ford's entry-level cars have been creeping up in price over the years -- a Focus costs about $2,000 more than the Escort it replaced. And GM Chief Executive G. Richard Wagoner Jr. recently noted the effects of "aggressive pricing" by the Koreans on Saturn, which has seen sales of its base models sag 11%.

Adding yet another brand to their bulging stables, just might be the answer GM and Ford are looking for.