"Automotive Industry Faces Deepening Liquidity Crisis in April... Concerns Over Factory Shutdowns and Wage Cuts"

"Parts Companies' Sales Down 30% Last Month... Worse in April"

Last month, completed vehicles were waiting in the yard of Hyundai Motor's Ulsan plant (Photo by Yonhap News).

[Asia Economy Reporter Kim Ji-hee] As the novel coronavirus disease (COVID-19) spreads worldwide, causing overseas factories to shut down one after another, liquidity problems in the domestic automobile industry are intensifying.

According to the second survey released on the 1st by the Automobile Industry Federation COVID-19 Corporate Difficulty Support Center, five domestic automakers are experiencing large-scale production disruptions due to the suspension of operations at overseas local factories or parent company factories in their home countries. These companies are holding on by operating domestic factories at utilization rates of 80-98%.

Some companies are forecasting disruptions in global parts procurement after April and are reportedly considering domestic factory shutdowns lasting more than ten days. They are even reviewing wage payment deferrals or reductions in preparation for worsening liquidity.

For parts suppliers, sales declined by 20-30% last month due to shutdowns of global automakers. The problem is that sales decline is expected to increase significantly from this month.

Production costs are also soaring due to global supply chain disruptions. Especially for companies operating overseas factories, liquidity problems are expected to worsen severely after the second week of April due to additional air freight costs for smooth parts supply between overseas and domestic factories. Accordingly, companies plan to minimize expenses such as operating costs and travel expenses to cope with the deepening liquidity crisis. However, there are calls for government-level countermeasures as well.

Quarantine systems such as masks, hand sanitizers, and thermal detectors are operating better than on the 18th of last month when the first survey was conducted. However, despite responses using landline phones and video conferences, difficulties due to challenges in overseas business trips continue, according to analysis.

The automobile industry has requested the government to expand liquidity support, support labor costs and employment retention, and revitalize domestic demand. Specifically, for expanding liquidity support, they proposed emergency operating funds and corporate bond purchase support, deferral and reduction of corporate tax, value-added tax, and individual consumption tax payments. For resolving corporate financial difficulties and support, they advocated for deferral of repayment and interest on existing loans, prompt introduction of a rapid corporate screening system, and improvement of industry- and sector-specific screening and evaluation systems.

For labor costs and employment retention support, they suggested expanding the scale of employment retention subsidies and easing requirements, substituting holidays and leave during factory shutdowns, and allowing special extended work permits regardless of company size. Additionally, to stimulate domestic demand, they emphasized the need for concentrated public institution purchases in the first half of the year, a 70% reduction in automobile acquisition tax, expanded tax support for old vehicles, and a six-month extension of the 70% reduction in individual consumption tax.

Jung Man-gi, chairman of the Automobile Industry Federation, said, “With the global spread of COVID-19 causing simultaneous global production disruptions and demand contraction, the ecosystem of our automobile industry is at risk of collapse, and especially the bankruptcy of small and medium-sized partner companies is a concern.” He added, “The government should actively step in to ensure that the sharp decline in global demand over the next few months is replaced by domestic demand, such as by concentrating public institution purchasing power, and strengthen on-site guidance to ensure that corporate liquidity supply through the already prepared 100 trillion won financial package is carried out smoothly on the ground.”

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