After years of struggling in the South Korean market, General Motors is taking retailing into its own hands.
In May, the company started the GM AutoWorld dealership chain, which unites the many GM brands under one retailing roof. If AutoWorld succeeds, GM will introduce it throughout Asia. This is a key element of the retailing strategy that GM is using to grab a 10 percent share of the Asian market.
With GM's extremely thin sales volumes in South Korea, the idea for a one-stop shop could not be attacked. Last year, the automaker sold 68 vehicles, while Saab sold 141 units, a practically invisible share of South Korea's 1.3-million unit market. Other importers did not do much better. Last year, South Koreans bought 2,401 foreign cars and trucks. Business was so bad that the country's Saab importer went bankrupt.
'The cost of running and supporting brands is extremely expensive,' said David Jerome, managing director of GM Korea. 'This will standardize our customer care,' he added.
The AutoWorld concept already has been launched in Taiwan and will be extended to other Asian markets with minor changes. In Taiwan, GM AutoWorld includes Opel, Cadillac and Buick. 'The brand mix is up to local management, but AutoWorld is supported by headquarters,' Jerome said. 'More (Asian countries) are coming.'
In South Korea, the AutoWorld concept brings together Cadillac and Saab, while Chevrolet will be added next year. Why Chevrolet? 'It's a great mainstream badge, a very versatile brand,' Jerome said. 'It has tremendous breadth and there are no negatives associated with it, so we're not digging out of a hole.'
However, GM is radically shaping Chevrolet for Korean customers. The first Chevrolet product for South Korea will be the YGM-1, the GM-Suzuki subcompact that was previewed at the 1999 Tokyo Motor Show. Though the final assembly location is to be announced, Jerome says the model is set for a South Korean launch in 2001.
GM partners such as Subaru and Isuzu also will supply vehicles to AutoWorld, possibly under the Chevrolet nameplate. However, the products, the launch timetable and rebadging strategy remain to be negotiated with alliance partners.
Among importers here, there is a growing sense that sales finally are about to increase, but GM Korea remains cautious. Jerome predicted import sales would rise 50 to 100 percent annually. If so, that would mean the entire Korean import market would grow to a still-tiny 5,000 units this year. More optimistic executives have predicted import sales of 8,000 units, which still would mean an import market share of only 0.5 percent.
Among importers, luxury brands such as BMW and Mercedes-Benz have gained favor, while a winning strategy has eluded GM. When Korea opened its market to imports in 1986, GM relied on Inchcape, the British company with a strong car-retailing network in Asia. That partnership was dissolved in 1997. General Motors then set up a string of independent distributors and dealers before abandoning that strategy in favor of direct sales.
The automaker's new strategy is embodied by the 396-square-meter GM AutoWorld showroom in Kangnam. There are plans to add more company-owned stores in major regional capitals such as Pusan and Kwangju. GM will make future investments in buildings if sales grow. 'For now, the plan is to keep it in-house,' Jerome said. 'Frankly, it's hard to find someone who's good. We have a chance to set up stores the way we want that are run properly. In the future, we can spin them off.'
New print advertising
To change Korean consumers' indifference to foreign cars - and ease widespread fears of the company's proposed takeover of Daewoo - the company announced a $2 million corporate image campaign last September. The campaign, created by USA agency D'Arcy Masius Benton & Bowles, has generated favorable publicity.
The first advertisement adopts a humble tone to introduce GM to the Korean public and requests permission to participate in the Korean economy. The second advertisement discusses what that participation means in environmental, social and economic terms. For example, the campaign points out that the Cadillacs sold here use parts bought in Korea. In the third advertisement, GM defines what that means in terms of technology. Most of the advertising budget was allocated to print. The automaker has sidestepped TV advertising in favor of the Web. 'We don't want to be seen as too big or too oppressive,' Jerome said.
The Web site www.gmautoworld.co.kr enables customers to place an inquiry, order a car or merchandise as well as sign up for the VIP Club, which offers its members numerous preferential benefits. Customers ordering a car are eligible for a discount, which varies by model. The company lines up corporate partners to offer benefits such as points for frequent flier programs and invitations to model previews.
Despite the marketing plan, GM Korea continues to wage an uphill battle. Consumers who buy foreign cars still face lingering threats of tax audits, despite governmental assurances. In April, government authorities floated a proposal that those who buy cars with engines displacing 2.4 liters or more should be reported to the tax authorities. 'This led to a surge of order cancellations and a flood of used imported cars on the market,' Jerome said. 'Every single importer felt the impact. This issue has not changed one iota over the past decade.' But Jerome says relief is expected. 'The arrival of Renault and (the new owner of) Daewoo is going to make a big difference,' he said.
And what if GM successfully bids for Daewoo? Should Daewoo's domestic distribution system fall into GM's lap, it will not alter the company's plans for GM AutoWorld, Jerome said. 'I just don't see Cadillac and Saab as being sold alongside Daewoo cars. ... These are luxury premium brands, and that's not what Daewoo is all about.'
You can e-mail Correspondent Oles Gadacz at [email protected]