Cielo - A Car in Trouble

Details

Themes : Marketing Mix
Period : 1995-2000
Organization : Daewoo Motors India Limited
Pub Date : 2001
Countries : India
Industry : Automobile & Automotive

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Case Code : MKTG010
Case Length : 8 Pages
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Shifting the Focus to Matiz

In October 1998, Daewoo launched its small car 'Matiz,' which soon became very popular amongst the customers. Though Matiz did not fare as well as its rival Santro (from Hyundai) initially, over the next few months, its demand increased significantly. While 23,265 units were sold during April-December 1999, demand increased by 52.2% to 35,398 cars during April-December 2000. Analysts claimed that Daewoo seemed to be neglecting Cielo after the launch of Matiz. In May 1999, Daewoo stopped production of the GLE and GLX versions of Cielo and replaced them with the Cielo Executive and the Nexia.

While the former was positioned as the basic Cielo version with the best features of both GLE and GLX, the Nexia was promoted as being an upgraded version of the Cielo. The move failed badly because the dealers as well as the customers failed to see any worthwhile additions to the earlier Cielo model. Referring to Nexia as a slightly modified Cielo, a Daewoo dealer commented, "We have the Rs 0.4 million Cielo and the Rs 0.6 million Cielo (i.e. the Nexia)."

This was not surprising, for while Nexia's engine and interiors had been substantially changed, Nexia's exterior was very similar to Cielo. Daewoo said that it was not able to create a perceptual difference between the two cars amongst the consumers. Nexia failed to catch the customer's fancy and sales never really picked up. Daewoo attributed the low sales to the fact that the market for mid-size cars had become rather crowded. During the pre-launch and launch period of Nexia, Daewoo completely stopped advertising for Cielo. This created the impression that the Cielo was going to be completely phased out.

This prevented the company from positioning both cars independent of each other. From 2553 cars sold during April-December 1999, Cielo sales declined by 45.8% to 1385 cars during April-December 2000. Daewoo's plans to launch a Compressed Natural Gas (CNG) version of the Cielo were yet to materialize even in mid 2001. Matiz had a 70% market share in the Korean market and had received a good response in most of the 114 countries it was sold in. However, its performance in India was nowhere near its global success and Daewoo continued to run into losses. In 1999-00, the company had a loss of Rs 1.16 billion on gross sales of Rs 12.78 billion. The loss increased to Rs 3.4 billion on gross sales of Rs 11.84 billion in 2000-01.

Daewoo's rivals were quick to comment that the Matiz was also bearing the brunt of the company's poor marketing skills, adding that the poor legacy of the Cielo experience would be hard to shake off. Daewoo though, was still hopeful of succeeding in the Indian car market. The company expected the market to reach the one million mark by 2005-2006. Kim said, "Who would want to lose an opportunity to be part of that?" He added that Daewoo would break even in 2001-02. To meet this target, Daewoo was working towards enhancing its dealership and sales and servicing network as part of the restructuring programme. The company also undertook a massive cost cutting exercise, which involved cutting down on staff strength.

In order to reduce the wage bill, Daewoo reduced the working hours and also reduced the number of workers from 3000 in 1998 to 1951 in 2001. The company's prospects however showed no signs of improving as for the first quarter of 2001-02, Daewoo posted a net loss of Rs 1.21 billion - almost double the Rs 607 million figure in the corresponding period in 2000-01. At this juncture, the company even had to postpone its plans to launch three new top-end cars, Lanos, Nubira and Magnus.

In August 2001, Daewoo revealed plans to change the positioning of Cielo once more. The company's new managing director Young-Tae Cho claimed that the Cielo in its current form could not be continued. Until Daewoo managed to boost the car's sales, one would have to agree with the industry experts - who claimed that the company would never be able to make a success of Cielo.

Exhibit

Exhibit I: Categorizing Indian Cars