Anatomy of a Failed Alliance—General Motors and Daewoo

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ANATOMY OF A FAILED ALLIANCE—GENERAL MOTORS AND DAEWOO

In June 1984, General Motors and the Daewoo Group of Korea signed an agreement that called for each to invest $100 million in a South Korean-based 50/50 joint venture, Daewoo Motor Company, that would manufacture a subcompact car, the Pontiac LeMans, based on GM's popular German-designed Opel-Kadett (Opel is a wholly owned German subsidiary of GM). Much of the day-to-day management of the alliance was to be placed in the hands of Daewoo executives, with managerial and technical advice being provided by a limited number of GM executives. At the time, many hailed the alliance as a smart move for both companies. GM doubted that a small car could be built profitably in the United States because of high labor costs, and it saw enormous advantages in this marriage of German technology and South Korean cheap labor. At the time, Roger Smith, GM's chairman, told Korean reporters that GM's North American operation would probably end up importing 80,000 to 1,00,000 cars a year from Daewoo Motors. As for the Daewoo Group, it was getting access to the superior engineering skills of GM and an entree into the world's largest car market—the United States.

Eight years of financial losses later the joint venture collapsed in a blizzard of mutual recriminations between Daewoo and General Motors. From the perspective of GM, things started to go seriously wrong irTl-987, just as the first LeMans was rolling off Daewoo's production line. South Korea had lurched toward democracy, and workers throughout the country demanded better wages. Daewoo Motor was hit by a series of bitter strikes that repeatedly halted LeMans production. To calm the labor troubles, Daewoo Motor more than doubled workers' wages. Suddenly it was cheaper to build Opels in Germany than in South Korea. (German wages were still higher, but German productivity was also much higher, which translated into lower labor costs.)

Equally problematic was...
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