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GMDAT’s Arcamone Promises Auto Maker to Turn Profit This Year

Although domestic sales are down for many of its models, income from exports and profits from overseas subsidiaries and joint ventures are contributing to the Korean auto maker’s balance sheet.

SEOUL – Given its depressed domestic vehicle sales and Korean creditors pressing for repayment of a $1 billion loan, many analysts might not be optimistic about GM Daewoo Auto & Technology Co.’s future.

But GMDAT President and CEO Michael Arcamone begs to differ during an interview with Ward’s. “We’ve had a couple of tough years, but this year we will be very profitable, laying a solid foundation for the years going forward.

“Our cash flow and liquidity is solid,” he adds. “That is so easy to say now, but two years ago it couldn't have been said.”

Arcamone recently completed a 4-hour meeting with the Korea Development Bank and other creditors to discuss GMDAT’s loans that were dated to mature last April. All have voted to continue rolling over the $1 billion debt month-by-month.

Rolling over the loan money is not a dramatic last minute reprieve but an ongoing process as discussions continue, he says.

“We’re working together with a focus of either trying to convert the debt to a long-term loan or else paying it off,” Arcamone explains. “(The) KDB is both a creditor and an investment partner, and we are trying to find a win-win solution.”

Things look very favorable and should be resolved soon, he adds.

Despite negative publicity caused by the former General Motors Corp.’s bankruptcy, as well as some major vehicle recalls in South Korea and other markets, GMDAT has a good reputation as a corporation and employer, Arcamone says.

Indeed, Korea’s Ministry of Knowledge Economy this month awarded the auto maker a silver medal as the best foreign-owned corporation in Korea. “We were rated as the best foreign company on the basis of employment, research and development, export volumes and many other criteria,” Arcamone says.

Although GMDAT’s domestic sales are down for all models, except the Matiz Creative minicar (Chevrolet Spark) and the Damas and Labo minicommercial vehicles, income from exports and profits from overseas subsidiaries and joint ventures are contributing to the company’s favorable balance sheet, he says.

Profits are flowing in from overseas units, including Chevrolet Europe, which is a GMDAT subsidiary based in Zurich. Also contributing to the income stream is General Motors Co.’s joint venture in Uzbezbekistan that serves Russia and the Commonwealth of Independent States.

Europe presents many challenges as well as opportunities for growth, Arcamone says. Adverse publicity about the GM bankruptcy and government takeover has had some impact on sales in the Western European markets. Additionally, the global recession’s devastating economic downturn has hurt all auto makers operating in Europe.

“We need to go back in and get very aggressive and get brand recognition,” Arcamone says. “We need to gain a stronger position in Eastern and Central Europe and bring in new products like the Orlando (multipurpose vehicle), Captiva (cross/utility vehicle) and Aveo hatchback and notchback.

“We need to focus on Spain, France, Germany, Italy, all of them,” he adds. “We do very well in the Nordic countries, but for (the) Chevrolet (brand) in Eastern and Western Europe, we need people to get into the vehicles and try them.”

However, the momentum is picking up. GMDAT's global sales of completely built-up vehicles jumped 34.5% to 615,792 units in the year’s first 10 months, including 516,929 exports and 98,863 domestic deliveries.

Complete-knocked-down sales to China, Uzbekistan and other markets rose 17.2% to 894,490 units in the period.

Arcamone notes Chevrolet Europe is profitable and a contributor to GMDAT’s earnings. He also discloses the Korean subsidiary plays an active planning role in Chevrolet Europe’s operations.

“Chevrolet Europe product planning is done with us. We discuss what Chevrolet portfolio goes to Europe (and) focus on our high-volume products.”

Chevrolet Europe President and Managing Director Wayne Brannon at the Paris auto show this spring predicted Chevy sales in Europe could double by 2015, to 1 million units annually.

The 1 million-unit bogey would mean roughly half the units would be supplied from Korea. GMDAT exports the Chevrolet Spark, Cruze, Captiva, Orlando and new Aveo to Europe. The brand’s European portfolio also contains the Camaro and Corvette.

However, GMDAT does not have the capacity to produce a significant volume of additional vehicles. In fact, it soon may be running flat out at all four of its domestic assembly plants.

Arcamone says GMDAT and parent GM will look at their manufacturing footprint in other countries to determine where they could build vehicles sourced from Korea.

“The Aveo already is built in Mexico, as well as Korea, he says, and we are sure to build there (for Europe), as well as open capacity for us here in Korea,” he says. “We are running at overcapacity in our Changwon and Gunsan plants.

“With the launch of the (new) Aveo and Captiva next year, we will be very close to 100% capacity in our two plants in Bupyeong, as well.” Some of GMDAT’s profit stream from Europe flows through General Motors Uzbekistan YoAJ. The Korean auto maker holds a 25% stake in the JV with Uzbek state auto maker AK Uzavtosanoat owning the remainder.

Arcamone says Uzbekistan is a booming market at present. “The showrooms are empty. There's a 2-year waiting list for customers to get a vehicle.”

The JV’s Asaka plant, which also serves Russia and the CIS markets, will be operating at its maximum annual capacity of 265,000 vehicles by December, Arcamone says.

That means a major jump in production and sales, as GMDAT shipped just 199,000 CKD vehicles to Uzbekistan last year. Chevrolet currently holds 95% of the local market.

“Our plant in Asaka just launched the Chevrolet Spark, which is great news for Uzbekistan, and before the end of the year (will be) great news for Russia, as well,” Arcamone says.

It’s also good news for GMDAT which supplies 100% of the vehicles in CKD kit form to the Asaka plant. Additionally, a small number of Korean-produced Epica sedans and Captiva CUVs are assembled at a separate site in the capital city of Tashkent from semi-knocked down kits.

“Russian sales are starting to pick up, and we should ship about 100,000 units (there as well as) sell 160,000 in the domestic market.” He says the Asaka plant and JV are very profitable and help boost GMDAT’s bottom line.

Meanwhile, the new General Motors Powertrain Uzbekistan CJSC plant in Tashkent will be in operation by the end of 2011, Arcamone says. GMDAT holds a 52% stake in the new facility, with Uzavtosanoat owning the remainder.

The plant will produce 1.0L, 1.2L, 1.4L and 1.5L gasoline engines currently manufactured by GMDAT in Korea and by Shanghai General Motors Co. Ltd. in China. Capacity will top out at 360,000 units, with production adjusted annually to meet the needs of the Asaka plant, as well as export markets.

Also adding to GMDAT’s bottom line is its Korean Boryeong Powertrain plant, which produces the HydraMatic 6-speed automatic transmission. Since its launch in November 2007, the facility has produced more than 1 million units. Next year, it will ramp up output to more than 500,000.

The transmissions mostly are applied to GMDAT vehicles, including the Chevrolet Cruze/Lacetti Premier and Chevrolet Epica/Tosca.

Arcamone says 2011 will be an extremely busy year for GMDAT, with the new Aveo and four other new vehicles launching sometime between the first and last quarter in Korea and other world markets.

The auto maker’s vehicle design center in Bupyeong and Advanced Vehicle Design Center in Seoul also are running at full speed developing future vehicles.

Tae-won Kim, GMDAT vice president of design, says next up is a totally new vehicle to be featured at the Seoul auto show in April.

TAGS: Vehicles
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