In the mid-1990s, Daewoo built a wholly owned distribution channel in the United Kingdom, with no franchised dealers. I was part of that launch.
The challenge of launching a brand in a mature market with a different distribution and sales approach was irresistible. But Daewoo's focus on being different - without fully appreciating the need to be better as well - led to the experiment's ultimate failure.
As the first Daewoo recruit with current field and dealership experience, from Peugeot's factory stores, I quickly got involved with the management team to address some basic questions:
- How would Daewoo train employees with no experience selling cars to explain the unfamiliar fixed-price sales approach? How would they motivate sales employees who would be paid straight salaries, with no commissions?
- How would Daewoo compete with franchised dealers, who could present a broad array of purchase options that sometimes seemed more attractive than a "no dicker" sticker?
- How would the stores do test drives, carwashes and service work in retail spaces where landlords, health and safety codes, and environmental regulations essentially prohibited such activities?
- How would the stores do repairs on a new-vehicle fleet without a parts or service network?
Success, at first
Despite these difficulties, Daewoo Cars launched on April 1, 1995 - an ironic date if there ever was one.
The launch was sensational. Daewoo selected 200 volunteers, nicknamed "guinea pigs," who were generated from pre-launch advertising. They took delivery of long-term test cars to get them on the roads. The volunteers kept "Daewoo diaries" of their experiences.
We heard stories of people who followed a Daewoo for hundreds of miles, trying to find out what the car was and where to buy one.
TV commercials showed images of shark fins circling unwary buyers at dealerships. The voiceover promised that at Daewoo stores, no middleman would take a bite out of customers.
Instead, Daewoo promised customers low prices and hassle-free driving: free service for three years on nearly all major parts except tires, free service pickup and delivery, and free loaner cars. Because of such attention, Daewoo achieved high customer-satisfaction scores in J.D. Power and Associates surveys.
But troubles quickly began. Deliveries were slow, because of a lack of coordination among Daewoo stores, headquarters, and storage and distribution centers. Buyers often got different vehicles from the ones they had ordered.
Daewoo's determination to satisfy its customers, whatever the cost, was laudable. But it often diverted attention from the real business of selling cars and making money.
Then there was the matter of product quality. Anyone who drove a Daewoo Nexia - a twin of the Pontiac LeMans - or an Espero quickly realized they were mediocre cars at best.
As the vehicle line aged and a promised all-new lineup failed to appear, the launch's halo effect dimmed, and the novelty wore off. But the customer expectations Daewoo had created were as high as ever.
Daewoo's ambitious goals required expensive marketing programs. Building a direct-distribution network shifted the focus from selling and servicing cars profitably while controlling costs - practices by which franchised dealers live and die.
As revenue shortfalls grew, Daewoo moved to more traditional tactics, such as hiring employees with dealership experience and paying sales bonuses. To maintain sales, Daewoo had to offer costlier incentives, including free gasoline and insurance.
GM takeover
The "Daewoo difference" largely disappeared, even though the direct-sales effort limped along for several more years. Daewoo gradually moved to a two-tier system that included both factory stores and dealerships run by outside investors.
As sales plunged in the United Kingdom, the British operation's parent company in Korea declared bankruptcy. When a partnership led by General Motors acquired most of the assets of Daewoo Motor in 2001, it moved to close the British factory stores.
GM replaced them with a conventional network of franchised dealerships, which now have been rebranded as Chevrolet stores. Today there are about 90 Chevrolet dealerships in the United Kingdom. Most of them also have Vauxhall franchises. No factory-owned stores remain from the original Daewoo experiment.
The lesson of the Daewoo experience is that franchised dealers do what they do because it works. They rigorously monitor key indicators to reward performance. They know why they're in business. Different ways of distributing vehicles may work, but only if they create more-efficient methods of sales and service.
For a successful dealership, it's about selling the most vehicles for the most money at the lowest cost - while treating customers in a way that will ensure they come back for service and future purchases and recommend the store to others.
The Daewoo difference resonated with British customers, at least initially. But it did not take account of, or even acknowledge, the economic realities of the mature, time-tested system it tried to replace.
Just being different is not enough. Different must also mean better, for all parties.
Andrew Smith is new media director of AutoWeek.
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