The troubled Ukrainian-Korean car joint venture AvtoZAZ-Daewoo suffered from poor sales for a second straight year in 1999, raising more questions about the future of Ukraine’s largest foreign investment deal.
But there was good news from the company too, with a successful December sales drive accounting for roughly one-third of the company’s entire sales in 1999, according to the spokesman for the joint venture.
The joint venture, Ukraine’s only significant car-maker, reported on Jan. 27 that it produced just 6,045 cars last year, while posting a loss of Hr 17 million. Sales were just 12,624 cars in 1999 – half of those having been built in 1998.
Last year’s sales figures represented a 15 percent increase over 1998, but even though it boasts revamped Ukrainian and modern South Korean models, the joint venture’s sales in Ukraine still lagged behind those of Russia’s Lada (see chart).
But the joint venture’s prospects had brightened considerably since October 1999, according to AvtoZAZ-Daewoo spokesman Yevhen Kosachev.
It was then that the government granted the joint stock company Ukravto the right to manage the state’s stake in AvtoZAZ-Daewoo. Once the company had access to Ukravto’s extensive sales and distribution network, sales picked up immediately.
Using some 400 points of sale throughout Ukraine, Ukravto sold 4,195 cars in December alone last year, about half of the total sold over the first 11 months of the year. Ukravto director Tariel Vasadze has promised to sell 38,000 AvtoZAZ-Daewoo cars this year and to sell 184,000 cars a year by 2005.
Despite the robust December, the plant’s overall sales to date have fallen alarmingly short of expectations. Under the original deal, the AvtoZAZ-Daewoo was to produce some 72,000 vehicles in the first year and to increase production to 225,000 cars in 1999.
In return for a promised $1.3 billion in investment in AvtoZAZ, the government granted Daewoo sweeping tax breaks and banned the import of used cars over five years old – a measure that prompted the European Union and the World Trade Organization to accuse Kyiv of protectionism.
Public warring between the Ukrainian and South Korean management teams last year also dented confidence in the joint venture
AvtoZAZ’s Ukrainian managers said Daewoo had failed to follow through on its investment commitments and was resisting plans to cut prices, while Daewoo officials accused AvtoZAZ officials of trying to seize complete control of the company.
According to Kosachev, the two sides reached ‘complete understanding’ after the government replaced the Ukrainian head of the joint venture last year.
Boardroom battles aside, the company says its sales have suffered because of the government’s failure to enforce the used car import ban.
According to Kosachev, 370,000 cars were registered in Ukraine last year. He said AvtoZAZ-Daewoo cars were a ‘miniscule’ part of that figure, and claimed that the remainder mostly represented cars that had been illegally imported into Ukraine.
He said Ukrainians were using various ways to sidestep the import ban, and were still bringing used cars over five years old into the country.
‘We’re not against imports as a concept,’ he said. ‘We’re against illegal imports.’
