GM Quits Korea Retail Sales Operations

SEOUL– General Motors Korea sells its retail sales operations for General Motors Corp. and Saab cars to a private Korean businessman, effectively abandoning its fledgling and unsuccessful sales effort.

One source familiar with GM’s Asia/Pacific strategy suggests the move may be linked to GM’s plans for acquiring Daewoo Motor Co. Ltd. By divesting its dealerships, GM detaches itself from the retail sale of high-priced luxury cars and can focus on its own operations and anticipated high-volume sale of Daewoo products through another dealer network.

A GM Korea spokesperson strongly denies the move was linked in any way with GM’s currently stalled negotiations to acquire bankrupt Daewoo Motor.

Beginning immediately, GM Korea will transfer its flagship GM AutoWorld showroom in Seoul’s upscale Apkujong sector -- one of four GM AutoWorld outlets in Korea -- to Samyang Products Co. Ltd., operated by Choi Byung-kwon.

Choi’s business also is taking over the GM AutoWorld facility in Kwang-ju, with the Busan facility next in line. Mr. Choi also has plans to open two new dealerships on his own, one in the Seoul area and the other in Incheon, boosting the distribution network to six facilities.

GM Korea is retaining the showroom and service center it operates within its headquarters. The facility serves as a parts base for all other dealerships and handles service work for Cadillac and Saab cars in the Seoul area.

Several GM Korea employees have already transferred to Samyang Products. A GM Korea spokesman stresses, however, that no GM Korea employee will lose a job in the transaction.

GM sources acknowledge that the deal is aimed at increasing GM and Saab sales through use of a local automotive sales executive with strong experience in the Korean market. Some analysts say that this professed goal is an admission that GM Korea’s own considerable sales efforts have failed to achieve their targets and that outside Korean help is badly needed.

Mr. Choi is the person to provide it, most analysts believe. The aggressive entrepreneur was the Korean importer and retailer of Saab cars, from 1991 to 1998, stepping aside after GM purchased Saab. Before that, he had been involved with the sale of GM cars in Korea.

The move is startling to many because GM Korea has been working hard to establish its network of top-of-the line outlets for its Cadillac Seville and high-end Saab offerings.

The automaker made a considerable investment to support its new GM AutoWorld initiative throughout Asia/Pacific, with GM Chairman John F. Smith Jr. personally inaugurating the flagship facility just 14 months ago. GM heralded the new, luxurious AutoWorld outlet as a hallmark for the company’s Korean sales and service activities. At the time of its inauguration, Mr. Smith said the AutoWorld concept would be applied throughout the GM Korea sales network and would provide the model for future dealerships. The deal with Samyang Products effectively ends the GM AutoWorld dealership development program, analysts say.

The program had not paid off. Despite all efforts, GM sold only 54 Sevilles for the five months ending May 30 this year, a year-over-year decline of 18%. Saab sales were off even more, with 59 vehicles sold in the same period, a decline of 25%.

Mark Barclay, automotive analyst with Samsung Securities, calls GM’s move positive. “It’s a smart idea and I think we have to look at it as a way for strategically improving their position within the Korean market. So long as the entrepreneur who is handling sales has strong Korean automotive experience, it’s a sound move.”

Mr. Barclay notes that Toyota recently made a similar move when it brought Lexus luxury cars into the Korean market. Toyota opted to contract with the Korean company, a move that saw sales grow from 24 units in the first five months of 2000 to 324 units in the same period this year.

Analyst Richard Pyo of Credit Suisse First Boston, however, feels the move is “going against the tide.” He says there is a trend among foreign automakers to handle their own sales and marketing operations. He notes both Volkswagen AG and import-leader BMW AG operate their own sales and service networks.

Over at Hyundai Motor Co. Ltd., which, with Kia Motors Corp., controls more than 80% of the Korean domestic market, one official registered great surprise.

“It seems like a retrograde step because they have built up their own sales operation and now are giving it away,” the Hyundai official says. “Perhaps with their sales falling they think if they have a Korean company handling their retail operations, the Korean people will be more inclined to buy their products.”

The official noted that all Hyundai Motor and Kia Motors sales outlets are factory-owned and the approach has been tremendously successful. “It’s a very interesting development,” he says. “We will have to wait and see what happens. It will free up some of their managers for other assignments and perhaps has something to do with their interest in acquiring Daewoo Motor.”

The move may signal a change in GM’s future product strategy. GM Korea managing director David Jerome has been working for the past year to develop a new product mix for the Korean market, including the sale of lower-priced, higher-volume Chevrolet-badged offerings – part of its efforts to conquer at least 10% of the domestic market in short order.

A source with knowledge of GM’s Asia/Pacific strategy says that GM Korea no longer intends to import any of its own “non-luxury” vehicles into Korea to vie in the domestic small car, midsize or fullsize segments, leaving the sector open for Daewoo’s model range, should the acquisition efforts be successful. Instead GM reportedly is considering importing the Cadillac Escalade luxury sport/utility vehicle and the Chevrolet Corvette.

How GM would market the Daewoo cars if it is successful in its attempts to acquire the troubled automaker is somewhat clouded, analysts say. Daewoo currently markets its vehicles through its own retail sales and service outlets and also provides service through a wide range of authorized service providers.

Some sources close to the GM-Daewoo negotiations say GM’s written proposal for acquiring Daewoo does not include language that provides for the acquisition of Daewoo Sales Co. Ltd. or the company’s dealership network.

If splitting its business into a high-end car wholesale operation and non-GM, non-luxury car retail operation is a new strategy, then it is one that evolved very rapidly. Just a few days ago, a GM Korea spokesperson confirmed plans to import a GM-Suzuki Motors Corp. jointly developed specialty “sports cruiser-type car.” The car, codenamed the YGM-1 and called the Cruze for most Asian markets, originally was supposed to bow in Korea this year but has been postponed until 2002. The Cruze will be badged as a Chevy and built by Suzuki starting in September.