Auto360 | Daewoo Motors India: The Story of the First Foreign Player to Arrive on Indian Shores


The Indian car market was extremely controlled and foreign players were not invited to play as the Nehruvian policies prohibited and protected the domestic car manufacturers. This even though had good intentions India passed through those years marred with many problems, mainly the Indian manufacturers did not give importance to quality, safety, innovation etc. and the Indian car buyer did not have many options to consider and hence the nexus won against the consumer.

Fast forwarding to 1991, the Indian economy was on the verge of a collapse as the balance of payment crisis escalated and the newly elected Prime Minister P.V Narashima Rao Government was in a minority in the parliament but he showed some nerves of steel by appointing economist and former RBI Governor Dr. Manmohan Singh as Finance Minister to deal with the crisis and make alterations to stabilise the economy and carefully build a middle path for the Indian economy to move away from core socialistic principles and focus on a mixed economy approach where capitalism and private enterprise is also encouraged. New opportunities in the civil aviation sector, automobile sector, telecom, media etc. were open and many rushed in to exploit it.

File: Then Finance Minister Dr Manmohan Singh and then Prime Minister of India, P.V Narashima Rao Courtesy: HT

In the automobile industry, the first foreign company to set shop in India was Daewoo Motors based in South Korea with help from DCM in 1995. They saw the vast potential for them to grow and being the first foreign player will help them to get a head-start compared to the others who got tangled in red tape and were taking more time to start for example Mahindra Ford India Motors Ltd (later Ford India). The untapped Indian automobile industry which only knew Hindustan Motors Ambassador based on the Morris Oxford series III of the UK and their flagship the Hindustan Contessa which was a rip off from Vauxhall Victor of the UK fitted with an Ambassador BMC engine to cut costs as they thought the Indian consumers were fools and never really understood the difference, the Premier Padmini, Fiat 1100 Delight and Premier 118NE (based on the Lada) manufactured by Premier Motors under license from Fiat, Standard Motor Company that manufactured Standard 2000 based on Rover SD1 and the small hatch the Maruti 800 manufactured by Maruti Udyog Ltd. or imported foreign cars especially Mercedes Benz for the rich were the only cars seen on Indian roads.

First Row: (From right) Hindutan Ambassdor, Premier Padmini, Second Row: (From right) Hindustan Contessa, Standard 2000

Daewoo Motors had a lot of models under their belt and they had to narrow down to one model to launch their operations in India, they choose the Daewoo Cielo which was the first mass market fuel injected car with 1.5 litre 4-cylinder petrol engine which churned out 80bhp of power and 120Nm of torque and was mated to a 5 speed manual and 3 speed automatic, in fact the Daewoo Cielo was the first automatic car manufactured in India. The car got factory fitted power steering, power windows, air-condition, stereo system etc. as features and it all came with a price range of 6-8 lakh. At the time, Daewoo Cielo was a luxury car and their target customers were wooed by its performance and features which no other car offered.

Daewoo Cielo

Daewoo Cielo TV Commercial

However, the problems began to take place as Daewoo Motors over-estimated the size of the Indian car market. This resulted in the company infusing Rs. 4000 crore at one go into the Indian subsidiary; this investment was the single largest by any car maker in India at the time. They built a fantastic factory to produce their car models and develop further models side by side but it proved to be a mistake as it triggered series of problems as the company put all the eggs in one basket.

The company initially did not understand as to why the Cielo didn’t pick up and then they decided to drop the price of the car by 1997 and reduced it by a lakh! This was done so that the company could improve its cash flow and manufacturing capacity utilisation. This move was not taken well by the interested few premium customers and they thought the car was no longer under the luxury segment and the company lost more potential customers.
Daewoo then again made a mistake by introducing Daewoo Nexia which was essentially the Cielo but rechristened and under the hood Daewoo fitted a 1.6 liter-4-cylinder petrol motor with a 16 valve and DOHC head with 92Bhp-130Nm on tap. The car was extremely powerful but it delivered poor fuel efficiency.

Daewoo Nexia

The company was always in a hurry and in that process majority of the key components were imported as a temporary measure and Daewoo decided to replace imports with Indian vendor made components later on, but they couldn’t find vendors as the market was too young at the time. Their dependency on these imports did burn a lot of cash and the customers were unhappy as maintenance was not easy at all. The company’s margins took a hit every time the rupee was depreciated and its factory in Surjapur had many labour problems and they were unable to settle the disputes and it affected the production.

Hyundai, the arch rival of Daewoo Motors also setup its operations in India and their first product the Santro was made with 70 per cent localisation, this meant their import costs were low and as they went forward they could increase the parts made in India because they already had vendors on the job. Also, Hyundai made their investments in two phases; the first phase investment was utilised to setup their base and the second phase investment was made when the company was nearing profitability.

Hyundai Santro First Generation

Another major problem Daewoo had was that the image and brand value of Daewoo Motors in India, it was quickly depreciating and their corporate communications did not have any plans to improve the situation and it remained aimless which affected a lot of their sales and even if a customer was interested in a Daewoo car the chances were that he would either change his mind midway and opt for a Hyundai, Ford or a Tata as they were able to market their products and communicate directly to the customer. Daewoo even though in troubles launched another product called the Daewoo Matiz, which was a very good affordable car but did not pick up sales initially in its segment and was second to Hyundai’s Santro.

The Matiz however had better features and performance compared to the Santro but Daewoo was unable to explain this to the customers and was following a crazy marketing strategy which people did not really understand and those who didn’t understand flocked to Hyundai showrooms. The Supreme Court of India banned the sale of Non-Euro – I vehicles in the National Capital Territory, Hyundai was in a fix as they needed time to bring Euro-I vehicles but Matiz sales went unaffected as it was already Euro –II compliant and the company managed a very low-cost marketing to highlight this point.

Daewoo Matiz

Daewoo Matiz TV Commercial:

Things began to improve for Matiz only after Daewoo India decided to take corrective measures to change their communications front by launching competitive and better advertisements pointing out the Matiz performance, features etc. it instructed all its dealers to make sure the customer understood the positives of the car and they should also encourage the customers to test drive all the variants to help them make an informed choice. Indigenisation slowly began to pick up as well but before the company could get out of the mess, the parent company went bankrupt.
Domestic stakeholders lost money and potential investors looked the other side thereby leaving Daewoo India which almost came close to profitability collapse.

Daewoo India did try to make the Indian consumer more mature to choose on quality and other features which no other manufacturer offered, they brought in the concept of value-for-money which every Indian customer ever since held close to their heart whenever they decided to buy a car.
Daewoo’s businesses were spilt and sold, GM (General Motors) purchased its automobile arm and went on a spree renaming all the Daewoo cars in the world as Chevrolet (they did that in India too with all the future Chevrelot cars being orginally built by Daewoo. Now, Chevrelot has shut shop in India). It’s commercial and heavy vehicles business was bought by Tata Motors. The Surjapur factory still stands today and inside there still remains the engines and unfinished body shells of Nexia and Matiz which never met each other nor saw the final assembly line.

Daewoo Matiz IIIrd Generation was launched in India as Chevrolet Spark by GM India
Matiz Body kits in the Daewoo India factory. Courtesy: Auto Adrenalin via TeamBHP
Abadoned Daewoo factory in Uttar Pradesh, India. Courtesy: SidIndica via TeamBHP
Article contributed by:

P.K Mathew

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