GM rescues Daewoo suppliers: Daewoo will retain its sourcing strategy—for now - Product - General Motors Corp

Automotive Industries,  Nov, 2002  by Andrea Wielgat

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Suppliers are obviously vital to any automaker.

They are even more critical when that automaker is trying to rebuild from years of turmoil.

But what happens when the suppliers are also in chaos?

In the case of GM Daewoo, you help them rebuild.

While Daewoo Motor suffered in public, Daewoo's suppliers suffered in private. By the time General Motors purchased the company, a handful had gone out of business. Others were forced to stop supplying the company until terms of the reorganization were defined by the creditors.

"There was a period when they did stop supplying and really they needed to know where they were," says Nick Reilly, GM Daewoo president and chief executive. "It looked as though they had stopped being paid for current deliveries and if that was the case it would reduce how much they could get from the reorganization."

GM couldn't really do anything for them then but listen. During final negotiations GM held meetings with both the supplier counsel and with a majority of individual suppliers. They had a purchasing team in place that was dealing with the component companies while the deal was being finalized. The suppliers stressed that it was a tough time for them and that they need to get the deal finished fast or they would not be able to keep going, Reilly says.

"They wanted us to support their position which is what we did," Reilly says. "It's critical for us to have a successful supply base."

GM understood their situation, Reilly says.

"We know some are in a very critical state and obviously all of them have some stretched liquidity issues," he says.

To help the suppliers financially the company is taking on the reorganization payments and has included $250 million into the deal to fund the payments. Instead of having to wait four to six years for payment from the creditors, suppliers will get it within the next several months.

"They will get a cash injection pretty soon," Reilly says. "That will put some liquidity back into the system."

In the medium term, GM Daewoo has ambitious volume targets. But the difficult part will be for the suppliers to get through the next six months while the volumes are relatively low. Because of this GM Daewoo continues to watch each and every supplier very carefully.

"I am cautiously optimistic that we can get through the first difficult period and thereafter there is a very good prospect," Reilly says.

In the shorter term, besides a cash infusion GM Daewoo has to continue to build relationships with companies that have been angered by years of problems with Daewoo Motor.

But the animosity has turned to acceptance and suppliers are doing their part to get through the reorganization and restructuring.

"The constant communication has been very deliberate on our part," Reilly says. GM Daewoo has let suppliers know that GM recognizes the suppliers' difficulties and will help where it can.

"We can't make cars without a supply base," Reilly says. "We only need one or two not to be performing or to go under to stop production."

What GM Daewoo won't do is try to right the wrongs of the past. Wrongs it did not make.

"That would make us just uncompetitive if we were trying to pay back some of the losses of the past," he says.

Still, GM Daewoo will keep most of its Korean suppliers. In fact GM doesn't have to change much about its suppliers. Because of its past joint ventures with GM, many Daewoo suppliers already use GM processes.

But Reilly says they will have to do some work on constant quality improvements since Daewoo Motor did not stress that.

"It's been more the traditional relationship of 'here's your price' then you argue about that price until you come to an agreement and then you leave," Reilly says.

GM Daewoo will be more proactive and will put resources into making suppliers more productive and competitive.

"We've been well pleased, actually, with the quality of the supply network generally and its level of competitiveness," he says.

Because of this GM will not make a significant change in GM Daewoo's sourcing program for at least two or three years.

Additionally on a company basis GM has started the 'Buy for Korea' initiative. The world's No. 1. automaker went Korea to survey its suppliers for its global supply base. The company sent out 165 different requests for quotes which have already resulted in orders for several companies to supply GM on a worldwide basis.

"There's been a $100 million worth of business placed with the Korean network already," Reilly says, "and that's totally on top of anything we are doing at GM Daewoo."

Daewoo concentrates on Korea, Europe

With the sale officially complete, GM Daewoo is now concentrating on recovering the marketshare it lost during the last several years.

The company will concentrate on the Korean and Western European markets for the next several years.

Sales in Korea will return now that the company is stabilizing with much of that due to the company's association with GM. The automaker is well known in Korean, says Alan S. Batey, vice president, sales, marketing and service for GM Asia Pacific, and is well respected because of its size.