Daewoo Pulls Out of L.A. Auto Show
Daewoo Corp. has abruptly canceled next month’s debut in Los Angeles of its new line of cars for the U.S. market, leading many observers to believe the company has become another overextended South Korean conglomerate.
Daewoo announced that it was cancelling its appearance at the Greater Los Angeles Auto Show with no explanation just days after its international credit rating was slashed. The company last month acquired controlling interest in ailing Ssangyong Motor Co., which has $32 billion of debt.
For the record:
12:00 a.m. Dec. 18, 1997 For the Record
Los Angeles Times Thursday December 18, 1997 Home Edition Business Part D Page 3 Financial Desk 1 inches; 33 words Type of Material: Correction
Daewoo Corp.--A story in Saturday’s editions on Daewoo Corp.’s withdrawal from the Los Angeles Auto Show misstated the amount of debt held by Ssangyong Motor Co., which Daewoo recently acquired. The correct amount is $3.2 billion.
Officials at Daewoo headquarters in Seoul said Friday that they ordered the pullout to do “technical fine-tuning” on the three cars Daewoo Motor America plans to begin selling in the United States. The company denied that the action was caused by financial concerns.
But auto industry and Korea watchers say Daewoo, like most South Korean companies, is feeling the pinch of the financial flu sweeping Asia. The lower credit ratings mean that Daewoo, already hard pressed for cash because of South Korea’s internal financial crunch, now must pay higher interest rates for borrowing in the international market.
That will probably put a damper on efforts to prepare Daewoo Motor America for its anticipated spring sales launch in the United States, said Wes Brown, an auto industry consultant at Nextrend in Thousand Oaks.
Withdrawing from the Los Angeles show “was probably a wise decision,” Brown said. “You don’t want to show off your new cars and get people interested and then tell them you don’t have anything ready to sell.”
Brown said he doesn’t believe Daewoo Motor, which already has postponed its North American launch several times, will begin selling cars here until early 1999.
But he said the delay could work in Daewoo’s favor by giving it a stronger financial base and an expanded line of vehicles when it does start sales in the U.S.
Daewoo Corp., with $67 billion in worldwide sales, is one of South Korea’s largest and strongest industrial and financial services conglomerates, or chaebol.
But almost all of the nation’s businesses are in financial turmoil now and “everyone is tightening up and reassessing their overseas activities,” said Eui-Young Yu, director of the Center for Korean and Korean-American Studies at Cal State L.A.
“Right now, the picture is very dismal and people are very panicky,” he said. “But I think a new picture will develop soon after the new president is elected” in South Korea’s presidential balloting next week.
Officials at Daewoo Motor’s Western U.S. headquarters in Compton declined to comment. Andy Fuzesi, general manager of the L.A. auto show, said the company gave no reason for pulling the plug.
“I’ve never had a major manufacturer pull out a week and a half before they were supposed to start setting up their display, and I’ve been doing this for 17 years,” Fuzesi said Friday.
Daewoo’s credit ratings were cut by Fitch IBCA Inc. and placed on a credit watch for potential downgrading by Standard & Poor’s Corp. after Daewoo Motor acquired controlling interest in Ssangyong Motor.
Many industry watchers have questioned Daewoo’s ability to begin selling cars in the U.S. market in the second quarter this year--as the company had planned.
While most Asian car makers had U.S. offices up and running a year or more in advance of their sales launches, Daewoo only started that process late this summer. The company originally was to begin North American sales last year but delayed its launch three times.
Daewoo officials most recently said they would introduce a Volvo-size sedan, the Leganza, in April, followed by a compact car and a subcompact.
In a statement disclosing that Daewoo has withdrawn from the L.A. car show, Western Regional President Y.T. Song said the company “is on track to launch next year,” but did not offer any dates.
John Rettie, a former editor of J.D. Power & Associates’ California Report on the auto industry, said it is more likely that the company will wait until Korea’s financial situation cools down.
He said Daewoo could use the time to obtain U.S. market certification for the Mercedes Benz-powered Musso sports utility vehicle inherited from Ssangyong.
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Chi Jung Nam in The Times’ Seoul bureau contributed to this report.
