Daewoo Arm Plan Hits Cul-De-Sac

Ancillaries of Daewoo Motors India are chalking out alternative plans for survival. At least one of them, however, has already hit a roadblock.

The foreign investment promotion board (FIPB) recently rejected a proposal by Rico Daewoo Precision Industries Ltd, a subsidiary of the Daewoo Corporation set up to manufacture and market car stereos and instrument panel clocks, for diversifying into new businesses such as running service stations for Daewoo Motors India and Hyundai Motor India and to act as authorised dealers for the car makers.

The department of heavy industries in the ministry of heavy industries and public enterprises and the department of commerce in the ministry of commerce and industry struck down the proposal since the activities being proposed by Daewoo Precision tantamount to retail trading, which is not permitted under existing FDI guidelines, sources said.

Daewoo group firms, including the electronics arm of Daewoo and Daewoo Telecom Ltd, Korea, have permission to hold up to 100 per cent shareholding in the venture, the sources added.

Rico Daewoo, which was originally set up to manufacture and market car audio systems and instrument panel clocks for passenger cars, had sought permission to set up service stations for the servicing and repair of all types of motor vehicles and to provide after-sales services for motor cars including sales of automotive components and spares for such after-sales service.

The service station would provide after-sales service to all types of cars. To begin with, the company planned to set up authorised service stations only for DMIL and Hyundai Motors.

The company also planned to import spares from Korea for after-sales service. Spares for Daewoo and Hyundai are not manufactured in India. In fact, even the two car manufacturers import their spares from Korea.

It also planned to act as authorised dealers of motor cars for Daewoo Motors and Hyundai Motors.

The company was allowed to bring in 100 per cent FDI in March 1999 for manufacture of Daewoo car stereos and instrument panel clock.

The government permitted test marketing of the products for a period of two years, until which Rico Daewoo imported the products in the CBU form. Subsequently, it also set up an assembly line.

However, poor demand for the products and the impact of the poor financial health of Daewoo Motors India forced the company to stop the business and look for diversification, Rico Daewoo stated in its proposal to the FIPB, the sources added.