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Daewoo Severely Cuts U.S. Unit

Autos: South Korean car maker reorganizes as sales slow to a trickle and funds dry up.


With sales dropping to a 19-month low and funding from its bankrupt parent having dried up, South Korean auto importer Daewoo Motor America has fired 50 managers and support workers and eliminated 20 already vacant positions at its Gardena headquarters and regional sales offices.

As it reorganizes to free more cash for marketing, the U.S. arm of Daewoo Motor Co. eliminated two of its four regional headquarters and its two-member public relations office and slashed the number of market and parts-and-service analysts and dealer representatives in its field offices.

The job moves come as the auto maker has seen U.S. sales slow to a trickle, its 515 dealers averaging fewer than 10 sales a month.

Gary Connelly, vice president of sales and marketing, said Daewoo Motor America "isn't getting any [financial] help from Korea" as the parent company awaits word on a long-stalled buyout offer from General Motors Corp.

"Things are very uncertain with all the bad news, and our dealers are all up in the air," Connelly said. "We decided that we need to focus just on the U.S." and stop worrying about events in South Korea.

"The savings [from the payroll cuts] all will go to marketing efforts here," he said.

The firings, which cut corporate employment 30%, took place Wednesday and Thursday. Affected workers were handed a memo instructing them to turn in their company cell phones, credit cards, laptop computers and files and to vacate their offices.

One fired executive, who asked not to be identified, described the process as "ruthless."

While rival South Korean auto maker Hyundai Motor Co. and its Kia Motors affiliate are enjoying robust sales in the U.S., Daewoo sales, at 34,430 units from January through July, are down 13% for the first seven months from the same period last year.

Daewoo has almost 30,000 unsold cars in the U.S., mostly 2001 models, sitting at port facilities and dealerships.

Connelly said that although the backlog is unusually large, it was intentionally amassed because of fears that labor unrest at Daewoo factories in South Korea this summer would curtail production.

Still, in confirming the firings and reorganization Friday, Connelly acknowledged that slowing sales also are contributing to the backlog.

As part of the downsizing of field staff, dealers that sell fewer than seven Daewoo cars each month will no longer get a monthly visit from a company representative and instead will receive communications by phone.

"We have cut the fat," Connelly said. "We had four regions and now we have two. We are centralizing many functions here at headquarters." Product planning, a crucial function at any automotive company, will fall to the distribution department.

Daewoo Motor America, which began selling cars in the U.S. in October 1998, has had problems from the start.

It originally intended to sell all cars through company-owned centers, with service supplied by an outside vendor such as the Pep Boys--Manny, Moe & Jack. That plan fell through because of the costs involved and because many states prohibit auto makers from owning dealerships.

Daewoo's U.S. cars--the subcompact Lanos, compact Nubira and mid-size Leganza--have won praise for styling but get low marks in initial quality surveys and generally are regarded as underpowered.

The U.S. subsidiary has had limited money for marketing and has failed to introduce promised new models, including a small sport-utility vehicle called the Korando. Its corporate parent has been in deep financial trouble at home for several years, racking up more than $18 billion in liabilities and being propped up by the South Korean government pending sales of its assets.

Ford Motor Co. had been wooing Daewoo but abruptly pulled out last year, leaving General Motors as the major suitor. But talks with GM reportedly have been rocky, with the world's largest auto maker lowering its bid as it digs deeper into Daewoo's finances.

Daewoo Group founder Kim Woo Choong is a fugitive, charged this year with embezzlement after fleeing South Korea in 1999 as his companies tumbled into bankruptcy.

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