Automotive Industry "Liquidity Shortage of 28 Trillion Won if COVID-19 Crisis Lasts Over 4 Months"

Analysis of 'Post-COVID Impact' by 5 Complete Vehicle and Parts Associations
Industry Sales Drop 30% if Lasting 4 Months
Fixed Costs Like Suspension Pay Continue
Parts Suppliers Face 13.7 Trillion Won Liquidity Shortage Expected

[Asia Economy Reporter Su-yeon Woo] It is estimated that if the novel coronavirus infection (COVID-19) situation continues for more than four months, the liquidity shortfall amount for domestic finished car and parts manufacturers will reach 28.1 trillion KRW.

According to five associations related to finished car and parts manufacturers, including the Korea Automobile Manufacturers Association, if the demand cliff and production disruptions continue for about four months from April to July this year, a total liquidity requirement of 28.1 trillion KRW is expected to occur across all finished car and parts manufacturers, based on their own estimates.

The association forecasted that if the impact of COVID-19 continues for the next four months, the sales of the finished car and parts industries this year will decrease by 30% compared to expectations. On the other hand, even if factories stop operating, companies must pay 70% of labor costs as suspension allowances, and fixed costs such as interest expenses and monthly rent must continue to be paid.

First, in the case of finished car manufacturers, fixed costs including labor costs for four months are estimated to amount to 14.4 trillion KRW (4.3 trillion KRW in suspension allowances and 10.1 trillion KRW in other fixed costs). This figure was calculated based on the forecast that sales of finished car manufacturers will decrease by 30%, or 51 trillion KRW, over four months due to the impact of COVID-19 this year.

During the same period, the parts industry is estimated to face a liquidity shortage of 13.7 trillion KRW (7.3 trillion KRW in suspension allowances and 6.4 trillion KRW in other fixed costs). The parts industry also expects a 30% sales decline if the COVID-19 situation continues for four months, with 24 trillion KRW of sales disappearing out of the expected 80 trillion KRW in sales this year.

Even if the COVID-19 crisis ends around the end of June and the related impact is quickly resolved within two months, the automobile industry is predicted to experience a liquidity shortfall of at least 14.1 trillion KRW. The industry forecasted that sales during this period could decrease by about 15% compared to expectations, resulting in a liquidity shortage of 7.2 trillion KRW for finished car manufacturers and 6.9 trillion KRW for parts manufacturers.

Accordingly, the Korea Automobile Manufacturers Association proposed that liquidity support measures exceeding 32.8 trillion KRW are necessary to prepare for the upcoming sales cliff and production disruptions. It mentioned the need for policies such as extending tax payment deadlines and relaxing requirements for companies currently facing difficulties, supporting inventory expansion for smooth parts supply, and emergency air transport support. Additionally, it requested temporary relaxation of labor regulations, such as allowing special extended work hours, to stimulate domestic demand recovery and prepare for a production surge after the situation is resolved.

Jung Man-ki, chairman of the Korea Automobile Manufacturers Association, said, "To ensure the survival of our companies during the demand cliff caused by the COVID-19 pandemic, resolving liquidity difficulties is of utmost importance," and added, "It is necessary to prepare detailed measures so that companies can actively utilize government support timely and appropriately."

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