BREAKING up isn't always hard to do.
Sometime within the next month, General Motors Corporation and the South Korean carmaker Daewoo Motor Company Ltd. will sign "divorce papers," ending their once-promising joint venture. The separation comes on the 20th anniversary of GM's initial investment in Korea.
It wasn't all that long ago that auto industry analysts were suggesting South Korea was on the way to become "the next Japan." But these days, they're openly wondering whether the Koreans will be able to survive - at least in the vital US market.
Since 1987 a Daewoo plant has been rolling out an inexpensive subcompact cars sold in the United States as the LeMans in GM's Pontiac family. In 1988, sales reached 64,037, but by last year, they had tumbled to 34,700. And volume was off another 30 percent during the first seven months of 1992. American sales decline
Daewoo isn't the only struggling South Korean carmaker. In 1988, Hyundai Motor America sold 264,282 cars in the US. Last year, HMA sales plummeted to just 98,700.
The GM/Daewoo venture has been on the rocks for quite some time. Back in 1989, one of GM's top trouble-shooters was assigned to oversee the operation, hoping to solve persistent quality and productivity problems. Now Daewoo will pay $170 million to buy out its partner's 50 percent stake, according to reports in Seoul's Economic Daily.
Constant, often violent strikes were a major problem, says one GM executive. "It got so bad you couldn't hold a meeting during the summer because the heat would bring out the lingering residue of tear gas that permeated the floors, rugs, and walls."
The depth of the Korean slump can be measured, of all places, in the suburbs of Montreal. Envious of the success of their Japanese rivals, the Koreans were also well aware of the political problems caused by Japan's huge automotive trade imbalance with North America. So, in December 1988, Hyundai opened a $444 million assembly plant in Bromont, Quebec.
On paper, at least, this plant is designed to roll out as many as 100,000 cars a year, a supplement to the vehicles Hyundai imports from Korea. But things haven't worked out as planned. Quebec plant in trouble
Dal Ok Chung, president of Hyundai Motor America, concedes it is likely to be years before the Bromont plant is running at capacity - even with the addition of a second product line. Some industry sources say they believe Hyundai will sell the factory or at least use it to build cars for other manufacturers.
Even when Hyundai imports are added in, "within five years, we will still be behind our highest sales levels. Within five years, I think the maximum will be 180,000, definitely below 200,000," Mr. Chung says.
Chung was transferred to the US early this year to try to bail out the sinking operation. For the moment, he admits, he is barely able to tread water.
In Korea, meanwhile, Hyundai's militant unions have disrupted production and driven up wages. This, along with a weakened US dollar, eliminates much of the cost advantage Korean factories once boasted about. Chung estimates Hyundai can save only $200 to $300 now shipping a car in from Korea as opposed to building it in Bromont.
Labor strife has repeatedly set back production targets. Last year's strikes forced Hyundai to delay the introduction of its sporty Scoupe coupe by almost six months. Quality perceived as poor
Korean carmakers have also received poor marks for quality. The original Hyundai Excel ranked near the bottom of the oft-quoted J. D. Power Customer Satisfaction Index. Only Yugo owners reported more initial defects.
The Koreans have tried to counter the problems. GM refused to invest more money in the Daewoo joint venture until things improved. At Hyundai, officials are refusing to ship cars until they pass rigid quality checks at the factory. And to assure those buying the new Elantra sedan, Hyundai is even paying for all repairs and routine maintenance.
"While quality has improved, they are still saddled with the reputation for poor quality," says Jesse Snyder, auto analyst with Autofacts Inc. "It will take a long time to recover."
Despite these problems, the Koreans aren't ready to write off the US market.
In fact Kia, the Korean affiliate of Ford Motor Company, is currently laying the groundwork for its own US sales network, independent of Ford. The progress has been slow, industry observers say. Potential dealers are well aware of the losses racked up by early Hyundai retailers and have been reluctant to sign up with the new Korean on the block. Ford spokesman Ken Brown insists his company's relationship with Kia will continue.