'Production-to-Sales Cliff' Rapid Spread... Auto Industry Faces Reality of 'Corona Vicious Cycle'

Daily Average Sales Volume Change Rate... Last Week of February -42.2%
Expected to Exceed -50% in First Week of March, Widening Decline
Finished Car Factory Operating Rate Increased, but the Problem Lies with Parts Suppliers

[Asia Economy Reporter Kim Hyewon] The domestic automobile industry, hit hard by the novel coronavirus infection (COVID-19), is increasingly facing the reality of a production and sales cliff. Due to supply disruptions of Chinese-made parts caused by the COVID-19 outbreak, last month's finished car production volume, which could not operate factories normally, recorded the lowest level since 1999, and the average daily domestic sales volume during the same period was halved compared to the same period last year. In March, finished car manufacturers raised factory operating rates to an average of around 90%, but parts suppliers' operating rates remain at 50-70%, prompting calls for effective government support.

According to a survey conducted by the Korea Automobile Manufacturers Association (KAMA) on the "Current Status and Difficulties of the Automobile Industry Due to COVID-19" on the 10th, domestic automobile sales began to decline from the third week of February after the first confirmed COVID-19 case in Korea on January 20. From the fourth week of February, when the possibility of community transmission was raised, the daily average sales decline widened. The daily average sales change rates in February were -14.6% in the third week, -31.6% in the fourth week, and -42.2% in the last week, showing an increasing decline. If this trend continues, the sales decline in the first week of this month is estimated to have exceeded 50%. The industry analyzes that delays in delivery due to parts and finished car production disruptions, increased waiting demand due to new car launch postponements, and anxiety caused by COVID-19 have influenced the sales decline.

Last month, the production volume of five finished car companies was provisionally tallied at 189,235 units, down 26.4% year-on-year due to supply disruptions of Chinese-made wiring harnesses. This is the lowest monthly level since February 1999 (169,518 units). By company, Ssangyong Motor (-36.9%), Hyundai Motor (-32.5%), Kia Motors (-27.0%), and GM Korea (-14.4%) showed large declines in that order.

Chinese wiring harness suppliers' factory operating rates currently maintain over 90%. Thanks to this, the average domestic factory operating rate of finished car manufacturers rose to the 90% range in early this month. The problem lies with parts suppliers. Due to unstable operations of finished car manufacturers and inventory adjustments by some companies, their average operating rate remains at 50-70%. This is up to 40 percentage points lower than that of finished car manufacturers. The fact that 24 confirmed cases emerged among 20 Hyundai-Kia parts suppliers, including Hyundai Mobis, Hyundai Steel, Seojin Industrial, and Nexen Tire, causing some production halts, also had an impact.

A steering wheel steering device manufacturer located in Ansan, Gyeonggi Province, said, "We are operating normally, but due to a decrease in delivery volume to the original equipment manufacturer, the operating rate remains at about 70% of production capacity," adding, "Last month's sales decreased by 30% compared to the previous year."

As the automobile parts industry faces severe management difficulties due to decreased sales from lower operating rates, they have requested the government through the "COVID-19 Corporate Difficulty Support Center" established by KAMA to implement ▲extension of loan maturities by financial institutions (1 year) ▲temporary corporate tax reduction (1 year) ▲relaxation of special extended working hours approval criteria ▲easing of employment retention subsidy requirements ▲support for stabilization of hygiene product supply ▲lifting or easing of entry restrictions. For example, companies such as Kyungshin, Yura Corporation, and THN, which applied for special extended working hours approval last month, need additional extended working hours after the 4-week period expires. They requested adding a clause for "compensating production disruptions caused by COVID-19" to the approval criteria and prompt approval for additional applications after the special extended working hours period ends. There was also a request to support 50% of the cost of purchasing quarantine supplies in cash upon submission of supporting documents.

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