Financial Daily from THE HINDU group of publications
Thursday, Mar 04, 2004
Mergers & Acquisitions
Columns - Focus
Daewoo India's assets: Advantage GM
AFTER a protracted bidding and re-bidding exercise, and much speculation subsequently, GM India (GMI) has finally emerged as the buyer of the erstwhile Daewoo Motor India's car assembly assets.
The acquisition of Daewoo's Indian car assembly assets will be the best fit for GM in more ways than one. There are considerable synergies that GMI will get from this, which was not available at the time that Korean car manufacturer's global operations were being offered to GM in 2001.
The first, obvious benefit that GM will get from the acquisition of the Daewoo car assembly at Surajpur, near Delhi, is the ability to hasten its plans for launching a small (sub-compact) car for the Indian market. As part of its India plans, GM was intending to launch the Chevrolet Spark (erstwhile Daewoo Matiz). The Spark's platform and model specifications come from the Daewoo Matiz, after GM acquired Daewoo Motor, Korea.
The inherent, but not so obvious advantage that GM could enjoy will be the availability of even the dies, moulds and jigs of the once popular small car Daewoo Matiz.
Since the Chevrolet Spark will share the same platform and possibly even most of the body panels with the Daewoo Matiz, this acquisition could make eminent sense from the point of view of GM's small car entry strategy. This would effectively equip GMI to time its entry into the competitive, volumes driven small car segment earlier than its original schedule of launching by late-2005 or early-2006 plan.
GM officials, have however, refused to confirm if the acquisition will include the dies, moulds and jigs of the Daewoo Matiz.
Further, GMI's existing production capacity will be constrained by demand for its current and a couple of its future models including the Chevrolet Optra, which has been witnessing an increase in demand. The production plans for the Tavera, a sports utility vehicle, which could be launched either under the GM or Chevrolet brands later this year, will also restrict the availability of capacity for a volume model like the Spark.
GMI will also benefit in terms of investment, as the cost of a new assembly line would obviously be much more than what it would now be paying for the second-hand Daewoo plant. This is even after including refurbishing costs given that the plant has been idle since mid-2002.
The selective acquisition of the car assembly alone has also enabled GMI to avoid taking over the massive liabilities of Daewoo Motor India.
In the current low import duty scenario, the lack of an engine, transmission and axle (ETA) assembly will still not affect its future plans. When GM does launch the Chevrolet Spark, the rated production capacity of 85,000 units of this car assembly line will be put to use and the company will easily be able to import the car's ETA requirements without affecting the cost of manufacture.
Another potential benefit that GMI will get from this acquisition, that it does not currently enjoy, is the proximity to the country's largest car market. Delhi and its neighbouring area, collectively called the National Capital Region constitute nearly 40 per cent of the country's car market. Geographic proximity will result in lower freight costs for GM.
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