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Raw Deal
With Daewoo
in deep trouble, dealers and customers find
themselves in an irreversible mess, writes India Today's Malini Goyal.
Two years ago, Rajiv Deva was the envy of
many men. As India's largest dealer of Daewoo cars, Noida-based Deva was
doing brisk business. Daewoo cars were hot—Deva's agency Dynamic
Motors alone sold 400 a month. The cute-looking Matiz was luring customers
with its phenomenal fuel economy, technological prowess and award-winning
design.
That was then. Today, Daewoo Motors India Ltd is in trouble.
Though US carmaker General Motors has bought the Korean company, the Indian
subsidiary is not a part of the acquisition. The plant at Surajpur in
Uttar Pradesh is shut. Over 1,000 employees have been retrenched. The
1,400 who remain have no work. Financial institutions, with a Rs 970-crore
exposure, have moved court to take charge of its assets. The government
has cancelled its export licence and invoked bank guarantees.
As for Deva's business, sales have dropped to 10 cars a month. To push
sales, dealers like him are offering heavy discounts. Matiz SG—the
top-end model—is available for Rs 3 lakh, almost Rs 50,000 off on
the price tag.
"It's the same car at rock bottom prices but nobody wants it,"
says Deva. Deva's troubles are dwarfed by the problem facing over 1.5
lakh Daewoo car owners in India. With the number of
authorised Daewoo workshops dwindling by the day, they are stuck with
cars that few people service. The number of authorised workshops have
come down from 120 two years ago to 100 now. The resale value of Matiz
has crashed. A 2000 model is going for Rs 1.5 lakh as compared to over
Rs 2 lakh for other small cars. There is a bigger problem looming in the
horizon— availability of spares. Already, dealers are getting calls
from anxious Matiz and Cielo owners to ask whether they will continue
to stock spare parts if the company shuts down. Car manufacturers are
legally bound to make available spares for three years even after closure.
After that, Daewoo car owners will be at the mercy of dealers who import
spares. That would hike the prices of the parts
considerably. Daewoo officials and dealers are playing down the crisis.
D.W. Kim, joint managing director, Daewoo Motors India Ltd, assures customers
that "everything will be fine". Adds Deva: "Things will
change in three to six months." But few share their optimism. The
problem lies in Daewoo India's business strategy that created a demand-supply
mismatch. The Rs 3,500-crore plant with an annual capacity to produce
72,000 cars and 3,00,000 engines for big cars was a reckless investment.
Nearly 2,80,000 of the big engines were meant for export to Korea. In
effect, Daewoo was making engines for cars that it didn't sell in India
and was importing engines of its bestselling Matiz. When the Korean markets
crashed in 1998, the export demand dried up. Says Hormazd Sorabjee, editor
of Autocar India: Setting up such a plant in India was its biggest mistake."
Many may be feeling that becoming Daewoo customers was their's.
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