[Square] Preparing for the Restructuring of the Automobile Industry After COVID-19

Jung Manki, President of the Korea Automobile Manufacturers Association (Former 1st Vice Minister of Trade, Industry and Energy)

Jung Manki, President of the Korea Automobile Manufacturers Association (Former 1st Vice Minister of the Ministry of Trade, Industry and Energy)

The global spread of the novel coronavirus infection (COVID-19) has plunged the world's automobile manufacturers into a severe management crisis as they face factory shutdowns and a demand cliff. Most factories in Europe ceased operations from early March, and the United States, Japan, India, and others also partially or fully suspended operations from mid-March or early April. Recently, factories worldwide have closed except for some in China, our country, and parts of Japan. Due to border controls, movement restrictions, and store closures imposed by governments worldwide, automobile sales networks have been shut down, and demand has plummeted amid rising unemployment.

In March this year, Western Europe saw sales drop by 53% compared to the same month last year. France and Italy, where COVID-19 infections spread significantly, experienced even steeper declines of 72% and 85%, respectively, deepening the sales cliff. The United States, where infections spread later than in Western Europe, saw a 38% decrease in March, but the decline is expected to worsen in April.

With COVID-19 vaccines expected to be developed only next year, this crisis could last for more than a year. If countries around the world effectively learn from Korea's COVID-19 response model, the situation might ease before July. However, this period is expected to have a significant impact on the restructuring of the global automobile industry. Considering that the automobile industry was already entering a transformation period centered on electric vehicles and autonomous vehicles, and that industrial restructuring accelerated during previous global economic crises, the COVID-19 situation is likely to rapidly reshape the global automobile industry.

Attention should be paid to the Chinese automobile industry. In February, due to the COVID-19 crisis, China's automobile production was 290,000 units and sales were 310,000 units, representing an 80% decrease compared to the same month last year. However, as the situation stabilized, production in March rose to 1.42 million units and sales to 1.43 million units, reducing the decline to 44.5% and 43.3%, respectively, compared to the previous year. In April, factories are operating at full capacity, with utilization rates approaching 90%, indicating a clear recovery trend.

Chinese companies, already facing an industrial transformation, have prepared to compete head-to-head with Western automobile companies based on 30 years of accumulated experience and technology, strong government support, a vast domestic market, low wages, and stable labor relations with zero disputes. The COVID-19 crisis can be seen as providing another opportunity for Chinese companies.

While the West faces a serious emergency due to the demand cliff and supply chain disruptions, China has relatively more leeway. On the demand side, of the 27.8 million vehicles produced in China in 2018, only 4.1% (1.15 million units) were exported, meaning China can sustain itself with domestic demand alone. As China is quickly recovering from the COVID-19 crisis, its automobile industry ecosystem is expected to survive without significant damage. Regarding parts procurement, Chinese parts suppliers have entered the market alongside finished vehicle manufacturers, providing relative flexibility.

Chinese companies have actively pursued acquisitions and mergers (M&A) of Western companies such as Volvo to secure sales networks, accumulate technology, or build brands. The COVID-19 crisis may expand these opportunities. Already, Great Wall Motors acquired GM's Talegaon plant in India and Rayong plant in Thailand in January and February following GM's restructuring. If the Western COVID-19 crisis prolongs, many parts suppliers may enter the M&A market, creating opportunities for Chinese companies.

Considering that our companies are the primary competitors of Chinese companies based on product lines, effective responses from us are necessary. It is important to end the COVID-19 crisis early, focus on domestic demand to overcome the global demand cliff period, and ensure smooth liquidity supply to prevent the collapse of the industrial ecosystem. Tax reductions and employment retention support should also be actively considered to ensure the survival of the automobile industry.

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