Daewoo Motor Phils. Inc. will no longer push through with its plan to set up its own assembly plant in the Philippines after the Board of Investments (BOI) rejected four of the five car models it had applied for registration under the government's Motor Vehicle Development Program (MVDP).
Daewoo is still locked in a legal tussle with its local partner, Transfarm & Co. Inc., over its plan to set up its own plant, but the BOI decision effectively clinched the case in favor of Transfarm.
BOI governor Antonio Leviste told reporters that the board approved the registration of only one model, the Daewoo Chairman, a luxury car intended for the high-end segment of the passenger car market.
The BOI rejected Daewoo's lower-end models -- Lanus, Matiz, Hubira and Laganza. Matiz is a compact car already registered with the BOI under Transfarm which has been assembling this model under a franchise agreement with Daewoo.
According to Leviste, Daewoo has decided to forego its plan to assemble its own cars since it was allowed to register only its luxury car model. "Of course you can't spend on an entire plant to assemble only one car," he said.
Leviste, who has been mediating talks between Daewoo and Transfarm, said the Korean company was willing to settle with Transfarm but the Daewoo Group ran into deep financial straits that left its Philippine subsidiary without the funds to compensate Transfarm for its market development effort.
Transfarm has been in partnership with Daewoo Cars, a subsidiary of the third largest chaebol in Korea, since 1994 with a 70-30 percent-owned manufacturing plant in Compostela, Cebu.
With steady sales of 200-250 units a month, Transfarm said the Daewoo line, which includes Racer, Espero, Prince, Cielo and Brougham, has captured roughly seven percent of the market.
Daewoo's decision to assemble its own cars and apply the models for BOI registration was the move that sparked its row with Transfarm which has been assembling and marketing Daewoo cars under his franchise agreement.
With no authorization to assemble its other models, Daewoo now has to settle its dispute with Transfarm. Both companies had filed separate petitions for dissolution of partnership at the Cebu court as well as the Securities and Exchange Commission (SEC).
Transfarm, had earlier said it was no longer interested in keeping its partnership with Daewoo. Transfarm president Luis Quisumbing said the company's only concern was to be compensated for its efforts to develop the local market for Daewoo cars.
"They were not really good partners anyway," he said. "Having said that, Daewoo should have sat down and settled this rather than resorting to this trickery. After settling this, then we can part ways."
To settle the issue out of court, Transfarm has offered the plant and operations (including the dealership network) to Daewoo for $20 million but has not received any favorable response from the Korean firm.