"Car Overseas Factory Operating Rate Drops to 10% Range"…Industry Urgently Proposes Measures to Respond to COVID-19

COVID-19 Response Industry Development Forum on the 25th
Survey of 75 Companies... Complaints of Sales Decline and Local Factory Instability
Industry Proposes Special Labor Law for Disaster Response

[Asia Economy Reporter Suyeon Woo] Due to the COVID-19 pandemic, the operating rates of overseas factories of South Korean automobile manufacturers have dropped to the 10% range, and the feared 'production cliff' phenomenon is rapidly spreading across all industries. Following outbreaks of Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS), the management difficulties faced by companies due to infectious diseases have become a constant rather than a variable. Consequently, there is a call to enact a 'Special Labor Measures Act for Disaster Response (tentative name)' to establish a more systematic 'package policy' response to prepare for disasters.

On the 25th, 26 industry organizations including the Korea Automobile Manufacturers Association, Korea Employers Federation, Federation of Korean Mid-sized Enterprises, Semiconductor Industry Association, and Petrochemical Industry Association held an industrial development forum at the Korea Automobile Manufacturers Association's main conference room under the theme 'Global Impact and Response to COVID-19.' At this event, the industry proposed the enactment of the Special Labor Measures Act for Disaster Response and requested the application of flexible labor policies considering demand before and after the COVID-19 crisis.

The main point of the bill is to specify the disaster period during which the 52-hour workweek regulation would be exempted, and to significantly allow dispatched and substitute labor. Although global demand across all industries has sharply declined due to COVID-19, it is necessary to prepare for a situation where accumulated pent-up demand surges once the crisis subsides, requiring manufacturers to intensively increase production capacity.

Jung Manki, president of the Korea Automobile Manufacturers Association, said, "During the surge in demand when the COVID-19 situation calms down, our companies must be prepared to increase operating capacity without being restricted by working hour regulations." He added, "If a special law is temporarily implemented, it can help the industry recover losses within the scope that does not undermine the foundation of labor laws."

Recently, as confirmed COVID-19 cases have increased overseas, the operating rates of domestic companies' overseas factories have significantly declined. In the automobile industry, Hyundai Motor's Alabama plant and Kia Motors' Georgia plant in the United States, as well as Hyundai's Czech plant and Kia's Slovakia plant in Europe, have consecutively suspended operations. Hyundai-Kia Motors collectively have a production capacity of about 5 million units overseas, but recent production has fallen to around 600,000 units. This means that the overseas factory operating rate has dropped to the 10% range due to COVID-19.

As the operating rates of large corporations' overseas factories decline, related partner companies are trembling with fear of bankruptcy. According to an urgent survey related to COVID-19 conducted by the Korea Automobile Manufacturers Association on 75 companies from the 19th to 20th (multiple responses allowed), over 90% of companies cited 'sales decline due to demand contraction (91.5%)' as a difficulty. This was followed by difficulties in financing (36.6%), shortage of quarantine supplies (32.4%), instability in overseas factory operations (11.3%), uncertainty in overseas market demand (9.9%), restrictions on overseas business trips and lack of government financial support (5.6%).

Regarding requests, 67.8% of companies said expanding liquidity such as loan extensions is the most urgent. Suggestions also included tax reductions and payment deferrals (62%), expansion of employment retention subsidies (19.7%), support for quarantine supplies (18.3%), and easing of labor costs such as minimum wage (18.3%).

At the forum, numerous ideas for government support measures reflecting voices from the field were presented. First, the industry requested strengthening liquidity support for small and medium export manufacturers. Although the government has introduced various emergency financial support measures to mitigate the impact of COVID-19, these are criticized for being biased toward domestic demand-oriented sectors. The government announced a financial liquidity support policy amounting to 100 trillion won, about 5% of GDP, the previous day, but the industry suggested increasing this significantly to about 10% of GDP.

Additionally, it was pointed out that although the government had promised liquidity support through P-CBOs to revive the struggling automobile parts industry early on, actual support has not been implemented due to procedural issues such as guarantee screening time. The proposal included early execution of the 1.5 trillion won P-CBO support fund announced by the Ministry of Trade, Industry and Energy and assistance in supporting early issuance of corporate bonds for manufacturers using the Korea Credit Guarantee Fund.

Issues related to labor costs in export manufacturing were also mentioned. Although employers are not obligated to pay allowances during closures caused by infectious diseases, the government recommends payment, causing companies to suffer double burdens. To address this, the industry requested expanding the scale of employment retention subsidies and easing support conditions.

To stabilize companies' parts supply chains, the necessity of introducing fast-track approval for parts export and import, shortening import inspection periods, and operating customs clearance 24 hours was raised. To stimulate domestic demand, there was also a request to concentrate public institutions' purchasing power in the second quarter of this year and to expand tax credits related to corporate investment.

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