No more little minivans could cripple small firms

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No more little minivans could cripple small firms

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GM Korea’s plan to discontinue production of light commercial vehicles (LCV) has worried small business owners. The small vans and trucks you see often in Korea are essential to delivery-oriented businesses.

The issues started earlier last month when Ankush Arora, GM Korea’s vice president of vehicle sales, services and marketing, said during the Cadillac ATS launching ceremony that its Damas minivan and the Labo truck will not be rolled out after this year. He cited that those two models will likely fail to meet the government’s upcoming guidelines on gas emissions and safety measures despite injecting 20 billion won ($18.8 million) into development.

The nation’s third-largest automaker is currently the only producer of LCVs after Kia Motors discontinued its Towner in 2002.

After the news came out, consumers rushed to buy both the Damas and Labo. The sales of Damas and Labo were 1,012 units and 732 units last month, an on-year increase of 145 percent and 318 percent, respectively. The used-car price of these models has also gone up as well.

While purchasing these light commercial vehicles has become important, small business operators complained that the discontinuation of the two models will seriously affect their businesses in the future.

Already the Korean Drycleaners and Laundry Association sent its letter of complaint to the Korean unit of the U.S. automaker GM last week, while the Korea Florist’s Transworld Delivery Association is also considering taking similar action along with other civic groups.

“If those two models are discontinued, it will increase the maintenance cost for current owners and eventually affect our business,” an official from the laundry association said. “We hope the government and the company solve this issue for the good of the local economy.”

The Damas and the Labo have been popular models for small business owners since they were first introduced in 1991 by Daewoo Motor, the predecessor of GM Korea.

They both have been useful for delivery drivers as their small size allowed drivers to move around narrow streets while carrying more cargo than motorcycles.

These models can also use liquefied petroleum gas, which is cheaper than gasoline or diesel. In addition, the vehicles receive a tax deduction as well as a 50 percent discount on public parking lot fees and highway toll fees.

Industry observers said that if the Damas and Labo are discontinued, many consumers now have to turn to Hyundai Motor’s Starex van or 1-ton trucks like the Porter or Bongo, which are 30 to 50 percent more expensive than the Damas or Labo. The two vehicles sell for around 8 million to 9 million won.

GM Korea previously discontinued the Damas and the Labo in 2007 due to the country’s stricter gas emission rules but resumed production right away after it was granted a grace period from the government.

However, this time, the automaker said it doesn’t have a plan to enhance these models as their business feasibility doesn’t seem to be worth continuing.

Starting next year, the Korean government requires all vehicles to be equipped with on-board diagnostics II, an automatic system that informs the car driver of a malfunction of engine and gas emissions.

Also from 2015, the Damas and Labo would be required to have electronic stability control (ESC) systems and a tire pressure monitoring system (TPMS) as well.

According to a source from GM Korea, it would cost 20 to 30 billion won to install these systems, but at the current cost for the vehicles, it would take the company 30 years before they could make a profit on their investment.

“We will have to completely redesign these models to install those safety and environment systems,” said an official from GM Korea who asked not to be named. “If we do continue production, the price of these models probably won’t be the same as today.”

Experts said that not only the automaker, but also the government needs to think twice about how to keep up the production of light commercial vehicles as it is closely connected to the operations of small business operators.

“The government has promised to pursue ‘economic democratization’ by helping SMEs, but just standing by as the LCVs are discontinued isn’t in line with that,” said Kim Pil-soo, an automotive studies professor at Daelim University College.


By Joo Kyung-don [kjoo@joongang.co.kr]

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