US and European Factories Shut Down in Series... Bigger Problem for Korean Industry Is the 'Demand Cliff'

[Asia Economy Reporter Kim Hyewon] As the novel coronavirus disease (COVID-19) outbreak spreads uncontrollably in Europe and the United States, tension in industries such as electronics, automobiles, and batteries is reaching its peak not only in Korea but worldwide. To prevent the spread of COVID-19 and amid concerns over a 'demand cliff,' major global automobile companies are sequentially shutting down their factories in Europe and the United States. Hyundai Kia Motors, which has production plants in Europe and the United States, is also expected to face similar cases, such as the suspension of operations at its Alabama plant in the U.S. after one employee tested positive.

Hyundai Motor Company Alabama Plant in the United States

◆ Chain Shutdowns of Car Factories in Europe and the U.S... Hyundai Motor "Expecting 10-20% Sales Decline" = Europe has already closed many factories and temporarily shut down dealer networks ahead of the U.S. This is due to major countries implementing strong measures such as city lockdowns to curb the spread of COVID-19. Germany's Volkswagen suspended operations for 2 to 3 weeks not only in Spain and Italy but also in Portugal and Slovakia. Daimler, the parent company of Mercedes-Benz, decided to halt most of its European factory operations, and Ford in the U.S. also closed its plants in Cologne and Saarlouis, Germany. Toyota also decided to close its factories in Europe and Asia, including the UK, France, the Czech Republic, and Turkey.

In the U.S., American automakers such as GM, Ford, and Fiat Chrysler Automobiles (FCA), along with the United Auto Workers (UAW), agreed to reduce production in response to COVID-19. Ford, which temporarily closed its assembly plant in Michigan after a confirmed case, plans to close its factories in the U.S., Mexico, and Canada until the 30th. GM will shut down all its North American plants starting from the 30th.

Hyundai Motor's Alabama plant in the U.S. also suspended operations on the 18th after one employee tested positive for COVID-19. The resumption date will be decided in consultation with health authorities. Nearby is Kia Motors' Georgia plant. Hyundai's plants in the Czech Republic and Slovakia are operating normally, but with the chain shutdown of other plants becoming a reality, if parts supply disruptions worsen, normal operations will be difficult.

Jose Munoz, Hyundai Motor's Global Chief Operating Officer (COO) and President of the North America Regional Headquarters, said in an interview with a U.S. automotive media outlet on the same day, "It is still difficult to say for sure, but if the current situation continues, annual sales could be affected by 10 to 20%." Munoz added, "Some dealers have already closed due to government policies, causing disruptions in sales," and "We are assuming the worst-case scenario where the impact of COVID-19 lasts until July or August."

◆ Negative Impact on Entire Industries Including Electronics and Batteries... The Biggest Problem is the 'Demand Cliff' = As COVID-19 rapidly spreads in Europe and the U.S., domestic electronics and battery industries with many local business sites are on high alert.

Home appliance companies such as Samsung Electronics and LG Electronics are strengthening quarantine measures primarily to prevent shutdowns, while preparing various measures such as online marketing to cope with demand contraction in the event of a prolonged COVID-19 situation. They have also taken preemptive actions such as temporarily closing stores and implementing work-from-home policies to ensure employee safety. Samsung Electronics has temporarily closed offline stores in the U.S., Canada, and Peru starting this week and recommends work-from-home for possible personnel in regions severely affected by COVID-19. LG Electronics' Italy branch has been operating work-from-home since the end of February.

An industry insider from the home appliance sector said, "A bigger problem than 'production' is the prolonged situation where products made in major demand markets like the U.S. and Europe cannot be sold," adding, "Products manufactured mainly in Eastern European factories, where the COVID-19 spread is relatively weaker, are sold primarily in Western Europe, but if consumer sentiment weakens, sales will be directly hit."

The three domestic battery companies are strengthening quarantine at their factories in Eastern Europe and preparing phased scenarios assuming disruptions in operations and parts supply. Some companies are considering repatriating expatriates. A battery industry insider said, "Although Europe’s border closures exempt cargo, so there is no immediate problem with logistics movement, transportation times have more than doubled, and as confirmed cases increase, securing transportation means is becoming increasingly difficult," adding, "The worst case would be a paralysis of the logistics network." A steel industry insider said, "The spread of COVID-19 in Europe and the U.S. could seriously affect sales," and "With steel demand shrinking and the operating rates of upstream industry facilities declining, difficulties will intensify."

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