One Part Worth Less Than 1 Million Won... Korean Car Industry Comes to a Complete Halt

What is the 'Wiring Harness' that established the Korean car line?
The 'vehicle's blood vessels' made by combining wires... a labor-intensive part requiring manual work
Successful localization but production outsourced to low-wage countries like China
Supply issues spreading to other parts due to COVID-19, raising possibility of prolonged disruption

[Asia Economy Reporter Suyeon Woo] The entire South Korean automobile industry came to a halt over a single component costing less than 1 million won. This new coronavirus (Wuhan pneumonia) crisis has highlighted the need to diversify the supply chains of not only the automobile industry but also entire industrial sectors concentrated in specific countries.

The most problematic part during the new coronavirus crisis was the 'wiring harness,' a labor-intensive component with an individual unit price of only a few hundred thousand won. Since it is a component that combines each wire by car model to create thousands or tens of thousands of wiring bundles, manual labor is absolutely necessary.

The wiring harness refers to a bundle of wires and signal devices that supply power and control signals to various devices and parts of a vehicle. It can be considered a kind of vehicle's blood vessels or nervous system. For this reason, during the assembly process, it is laid under the vehicle body from the initial stages, connecting various parts.

Various Types of Wiring Harnesses / Source: Yura Corporation Website

While all automobile parts are important, the wiring harness is required at the earliest stage of the process, so if the wiring that connects the parts is not laid, the process cannot even begin. Recently, as electric vehicles and autonomous vehicles have become equipped with various complex sensors and vehicle structures have diversified, the product range of wiring harnesses is also becoming more varied.

Because wires must be combined according to various car models and individually twisted, bundled, and bent to fit the shape of the vehicle body, automation is still difficult and manual labor is required. Due to the need for various combinations and the large volume, it is also not easy to stockpile inventory for more than one to two weeks in advance. A representative from Yura Corporation said, "Because the combinations vary so much depending on the car model and orders are placed only after receiving customer orders from finished car manufacturers, it is difficult to produce inventory in advance."

Domestic parts companies such as Kyungshin, Yura Corporation, and THN have succeeded in localizing wiring harness production and supply these parts to major domestic finished car manufacturers like Hyundai and Kia. However, although they have succeeded in technology localization, the actual manufacturing process still heavily relies on China due to lower labor costs. These partner companies have completely halted production in China as the Chinese authorities extended the Lunar New Year holiday to February 2nd and further extended the shutdown until February 9th to prevent the spread of the new coronavirus.

According to the Korea International Trade Association, South Korea imported wiring harnesses worth $1.97 billion last year, with 87% of these imports coming from China. Other supply sources include Vietnam (7%) and the Philippines (3%). This crisis has clearly revealed the concentration of specific parts in specific countries, increasing calls for diversification of parts supply sources.

Junseong Kim, a researcher at Meritz Securities, said, "For low-priced and labor-intensive parts like wiring harnesses, even if the supply source is shifted to Southeast Asia, the impact on the final vehicle price will be minimal. Recently, labor costs in China have risen significantly, so exploring supply sources in Southeast Asian countries with lower labor costs than China is also one option."

The problem is that the impact of this crisis may not be limited to just the wiring harness component. The first signs appeared in wiring harnesses, which have a short inventory cycle of about one to two weeks, but if the shutdown of Chinese factories prolongs, the supply situation of other parts cannot be guaranteed. According to the Trade Association, 31% of the total automobile parts import value is from China. If this crisis continues, related parts such as steering wheels, steering columns, steering boxes, and airbags are expected to face a supply cliff.

The shutdown of finished car manufacturers' factories, the primary contractors, has caused a domino shutdown of linked small and medium-sized suppliers. Due to the nature of automobile production, where tens of thousands of parts are organically assembled, if there is a problem in the supply of one part, other companies inevitably suffer damage. Additionally, small micro-mobility companies that import ultra-small electric vehicles from China and produce them domestically in semi-knocked-down (CKD) form are also taking a direct hit, spreading the chain of damage.

Professor Pilsoo Kim of the Department of Automotive Studies at Daelim University expressed concern, saying, "In the automobile industry, problems can arise at any time not only in wiring harnesses but also in the supply of other parts. Due to this disaster, it is highly likely that domestic automobile factories will experience repeated cycles of operation and shutdown for some time."

This content was produced with the assistance of AI translation services.