LOS ANGELES - Daewoo Motor America, facing an uphill battle against strong competition and Americans suspicious of Korean quality, has yet another problem: poor residual values.
Two services that determine and predict used-car values - Kelley Blue Book and Automotive Lease Guide - have slammed Daewoo vehicle residuals as the worst in the industry.
This hurts the consumer who buys a Daewoo thinking he is getting a deal on a value-packed car, only to find out that the car is worth much less than he hoped when he trades it in for another vehicle.
'They're not having tremendous success the way they've been selling cars so far. It's a tough road, between the competition they face and the reputation for Korean quality,' said Doug Aiken, publisher of Automotive Lease Guide in Santa Barbara, Calif.
To be sure, it is early in the process, with very few vehicles actually returning as trade-ins. Daewoo sold only 2,400 vehicles from its September launch through the end of the year, a small pool for extrapolation. And both Kelley Blue Book and Automotive Lease Guide admit much of their Daewoo forecasting is speculative.
Bill Tucker, Daewoo Motor America vice president of marketing and customer relations, is not pleased with the valuation.
'I don't think it's accurate, because we're such an unknown quantity at this point. We haven't been here long enough to make valuations on residuals. Once the marketplace has experience with our vehicles, they'll see the value in the product,' Tucker said.
But for now, the forecasters are being conservative with the residuals.
According to Automotive Lease Guide numbers, any vehicle in the Daewoo line will be worth, at best, between 38 percent and 40 percent of its sticker price after three years. For comparison, competitive Honda and Toyota vehicles retain 55 percent to 58 percent of their value after three years, and rival Hyundai clears 40 percent.
Kelley Blue Book has taken an even harsher stance, placing almost all Daewoo vehicles - the Hyundai Accent-sized Lanos, Ford Contour-sized Nubira and the Toyota Camry-sized Leganza - at less than one-half of sticker price after just two years, and in the 34 percent to 41 percent range after 36 months. An additional 3 percent is deducted if the car is equipped with a manual transmission.
Perhaps most harsh is the 39 percent residual for the flagship Leganza. The similarly priced Toyota Camry and Honda Accord have 3-year-old values in the 58 percent to 60 percent range.
But even if Daewoo values increase, the potential damage to the consumer remains higher with a Daewoo vehicle because Daewoo does not haggle on its new-car prices.
Whereas competitive brands have up to $2,000 in incentives and still have wiggle room in negotiation, Daewoo has a no-haggle, full-sticker policy for purchases.
Since both Kelley Blue Book and Automotive Lease Guide base their residuals on full sticker, a purchaser who haggles and gets a rebate already has avoided some of the trade-in loss if he has been a savvy negotiator. But the Daewoo buyer is socked with the full weight of the depreciation, thus taking a bigger hit if the two comparable cars have the same sticker price.
Kelley Blue Book has had problems figuring out what Daewoo vehicles are really worth because Daewoo's use of factory-owned stores precludes the need for a dealer invoice, said Charlie Vogelheim, editor of Kelley Blue Book, based in Irvine, Calif.
Nor does it help that Daewoo has been selling its vehicles to its own salespeople at up to 50 percent discount, he added.
Some savvy Daewoo campus sales reps have taken their new-but-discounted Daewoos and tried to trade them back in for full sticker to rival dealers selling Hondas or Toyotas, dealers have told Vogelheim.
'There's no invoice price, no wholesale price, no retail price to base any of this on,' Vogelheim said. 'What happens to their sticker prices when Daewoo goes into those six states where there are franchised dealers?'
Daewoo is relying on college students to market vehicles on campus, as well as word-of-mouth marketing from community leaders and clergy to whom Daewoo lends the cars for free. Daewoo had relied on factory stores in 14 cities but is signing independent dealers in some states.
The upside is that 3-year-old Daewoos may provide low-cost transportation for used-car shoppers.
'A Honda Civic has a 55 percent residual compared to 38 percent for a Daewoo Nubira,' said Automotive Lease Guide's Aiken. 'That's nearly $3,000 difference side-by-side on a used-car lot.'