Daewoo Pins Its Hopes On Poland

Where politically appointed bosses once went hunting in company time, the new managers of FSO, the Warsaw-based carmaker now owned by Daewoo, set more store by commercial trophies.

In the 18 months since Daewoo took control, FSO has narrowed the gap on Fiat, Polands market leader. According to Choi Jung-Ho, president of its Centrum Daewoo sales arm, Daewoo is poised to overtake with a new generation of Korean-designed cars which have just started production.

Poland is the linchpin of Daewoos plans for the former eastern bloc. Since the early 1990s, it has snapped up carmakers in Romania, Uzbekistan and Poland, along with commercial vehicle manufacturers in Poland and the Czech Republic. Last month, Daewoo signed a joint venture with the main carmaker in Ukraine, virtually completing its regional ambitions.

 

Poland is central to Daewoos plans. The companys output in Poland is expected to reach 570,000 units by 2000. - making it by far the biggest of Daewoos foreign operations, and alone responsible for more than one fifth of the groups forecast production.

Getting there will not be easy. Many analysts questioned Daewoos judgement in buying FSO. last years deal to take over FSO, one of the least efficient former communist carmakers, followed almost five years of fruitless talks between the Polish government and General Motors, the worlds biggest car company. While GM insisted on tough terms - such as shedding many of FSOs 22,000 workers - Daewoo offered a three year employment guarantee.

Daewoo also agreed to keep FSOs outdated Polonez cars in production and it promised to built a new generation of Daewoo models at FSOs decrepit factory.

Daewoo has now lifted the veil on the changes that have taken place. Externally, the plant remains a vast sprawl of grandiose buildings designed for far more than the modest 95,000 cars made last year.

Inside, however, things have been changing. Much of the body and assembly areas have been swept away for production of the Lanos. Daewoos new small car. FSO will also assemble the larger Nubira and Leganza. And from next year, it should start building Daewoos latest car, the diminutive DArts.

Mr Choi believes the new cars will soak up FSOs surplus labour and turn what many observers thought was a basket case into a success.

While that remains an uphill task, the company has been bolstered by the vibrant Polish car market. Sales of cars and commercial vehicles should reach 534,000 this year from 426,000 in 1996 and 296,000 in 1995, according to Samar, a leading forecasting group.

Kim Tae-Gou, chairman of Daewoo Motor, is bullish about the future. Poland will be the seventh largest market in Europe in 1997, compared with the 10th biggest in 1995. WE expect it to be the sixth largest in 1998 and perhaps even the fifth largest in the next millennium, he says.

Output at FSO is forecast almost to double to 170,000 units this year. Daewoo has invested $ 22m to refresh the Polonez and production has been additionally boosted by assembling the Tico and Espero. Eventually, however, new models such as the Lanos will dominate. New body and assembly halls are already under construction for the updated cars. The plant will be unrecognisable in two years,, says Mr Choi.

FSO is just part of Daewoos automotive commitment to Poland. The company also owns the former FSL, a commercial vehicles group employing 5,000, which is being modernised to build new products under development at Daewoos Worthing technical centre in the UK.

Many of the engines will come from Andoria, the Polish motors group with 2,000 employees, which is also owned by Daewoo. Some may be shared with Avia, the Czech commercial vehicles group which also belongs to the Koreans.

Components will be sourced from Polish producers also under Daewoos wing.

Local sourcing should be cheaper than importing parts from Korea. Using Polish components will also meet the groups commitment to the government to increase the local content of its cars. The Lanos should have a local content of 70 per cent next year, says Mr Choi. Bringing in Korean partners should guarantee quality, he believes.

Some of the subsidiaries may eventually supply Daewoos other vehicle operations in eastern Europe and the former Soviet Union in a complex production matrix. But Poland will remain the central piece in the puzzle. Daewoo is already looking for a local site for its regional headquarters. The way things are going, its network may be in place well before its headquarters.