Daewoo: GM's small-car big gun

INCHEON, South Korea -- From most Americans, the GM Daewoo name and its flowerlike logo draw blank stares.

When the name does jog the memory, it often is linked to lamentable Korea-made compacts such as the rebadged Pontiac LeMans of the late 1980s or Daewoo Motor America's short, unhappy life selling vehicles in the United States from 1998 through 2002.

Even in its home market of South Korea, Daewoo has a meager 9 percent market share.

But on the world stage, GM Daewoo Auto & Technology Co. has emerged as a weighty player in the revival of parent General Motors Co. With expansion overseas crucial to GM's recovery from bankruptcy, the unsung Korean subsidiary is rising to deliver. Some examples:

-- GM Daewoo-made cars now account for about 22 percent of GM's worldwide sales.

-- One of every four Chevrolets sold globally is manufactured by GM Daewoo.

-- GM expects sales of GM Daewoo-made vehicles to surge 64 percent in the next five years.

Indeed, GM is leaning on Daewoo as its center for global small-car design, development and engineering. And insiders and outsiders alike credit Daewoo for enabling GM to raise its game when it comes to small cars such as the new Chevrolet Cruze.

Meanwhile, the unit's design studio outside Seoul is leveraging U.S. consumers' newfound respect for Korean brands, from Hyundai to Samsung, to whip up fresh, funky looks with attitude.

Little wonder GM left Daewoo untouched when the bankrupt company cleaned house last year.

"We never had a good, solid mini or small car in any of our brands," GM Daewoo CEO Mike Arcamone says. "Here, that's their expertise -- the right engineering solution for a small car."

The Canadian-born Arcamone, a 30-year GM veteran, took the helm of GM Daewoo in October 2009 after stints in Europe and North America. Here, he faces tough challenges.

Arcamone, 52, has to boost quality and also manage an engineering and manufacturing center dangerously reliant on exports. More than 90 percent of GM Daewoo's output is exported, either as knockdowns or completed vehicles.

GM Daewoo was created in October 2002 from assets purchased from the bankrupt Daewoo Motor Co. Ltd. for a bargain price of $251 million in cash. Tough buyout negotiations dragged on for two years over how to handle Daewoo's overseas sales networks and unwanted factories.

But cost cutting and a cash infusion helped put the remnants of the old company back on track. Today GM Daewoo operates three assembly plants in South Korea with annual capacity for 900,000 completed vehicles. The company also has capacity to produce 1.1 million knockdown kits annually for overseas assembly.

For Chevrolet, GM Daewoo makes the Chevrolet Cruze, Spark and Aveo small cars, the Epica sedan, the Captiva SUV and the recently released Orlando small minivan, all for export. The Aveo is the only vehicle being shipped to the United States, but that is expected to stop with next year's introduction of the next-generation Aveo, which will be made at GM's Orion Township assembly plant in Michigan.

There also may be limited exports to the United States of the four-seat Spark minicar until that car, which goes on sale in the first half of 2012, is fully localized in North America.

GM Daewoo's true expertise rests in small cars. The Cruze, which landed in the United States this year to rave reviews, is the work of Korean engineers -- even though production has been farmed out to factories worldwide.

"If it's a small car or a compact, it's coming out of here," Arcamone says. He notes that Koreans -- much like the Japanese -- have long specialized in building compact rides for crowded city streets.

"They know how to build a profitable small car," Arcamone says. "In the U.S. the issue was always pricing."

GM Daewoo's other pluses: a low-wage, highly skilled work force and deep pool of suppliers.

"They play a very important part, particularly in the development and production of smaller vehicles," says Dave Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor, Mich. "They are like one of the teeth on a gear. If that tooth is missing, the gear will not function."

So far, those gears are greased and turning.

As a sign of GM Daewoo's return to health, it plans to repay a $1 billion loan from Korean creditors this month. The loan was extended by the Korea Development Bank, GM Daewoo's second-biggest shareholder, to finance the management shift and prop up its then-struggling operations. The funds are not related to the U.S. bailout funds given GM last year. But swinging exchange rates remain a threat.

"GM Daewoo depends on export business too much," says Masatoshi Nishimoto, an auto analyst with IHS Global Insight in Tokyo. "Currently, Korean OEMs have not suffered from a strong currency hurting their export business. But a stronger Korean won will surely have negative impact on the export business of GM Daewoo in the future."

In terms of sales, the hot markets for GM Daewoo are the ones with the most potential for future growth: Eastern Europe, India and China.

The rising reputation of Korean rivals such as Hyundai and Kia helps GM Daewoo too.

"It's not a taboo anymore that it's coming from Korea," said Ankush Arora, vice president for sales and marketing. "It's probably a strength now."

Complaints about the quality of the current-generation Aveo, also engineered and built by Daewoo, stem largely from the fact it was a hangover model from the previous management. The cars coming out now are the first reflecting GM's overhaul, says spokesman Jay Cooney.

"The hangover is over," he says.

Since arriving in Seoul, Arcamone has made quality a priority at GM Daewoo, partly because he previously was a customer himself. As vice president of GM Powertrain Europe in 2007, Arcamone saw a lot of Daewoo product.

GM Daewoo's corporate slogan is "New ways, always." And one change Arcamone brought was meeting with Daewoo fan clubs to get customer feedback.

Some GM Daewoo practices are spreading to overseas units -- notably, Daewoo's pioneering "home care visits" offered with the Daewoo Alpheon, as the Buick LaCrosse sedan is called locally.

The company noticed that when customers pick up their cars, they are often so excited to get in and drive that they rarely listen to the explanation of the vehicle's features.

The solution was having the salesperson visit their homes after the customers have settled down.

Home care visits have since been taken up in China and the Middle East, Arora said.

Arcamone also turned heads by sending out personally signed letters of apology to Korean customers after a recall, something all but unheard of from a Korean CEO. GM Daewoo also is injecting an element of "Korean cool" into GM design.

About 260 people, including 60 designers, work at the studio at GM Daewoo's headquarters in Incheon, just west of Seoul. And their work on the latest round of small cars -- including the Cruze, Aveo and Spark -- is widely praised for its funky yet functional looks.

"In Korea, a small car doesn't have to be a basic car; it can be inspirational," design center Managing Director Andrew Smith says about the Korean knack for nice cars in small packages.

"Here you buy small cars not because you are on a budget but because they are appealing," he says. "Chevy is a good brand for us to work with because it has spunk and attitude."

Smith says GM Daewoo is always looking for new niches to exploit for small cars. The seven-passenger Orlando, which debuted at this year's Paris auto show and will be exported to Europe, hints strongly at future model trends, he says.

"We'll be looking at derivatives, new global portfolio entries," Smith says. "Hatchbacks, SUVs, minivans. There's a lot of space in between there."