"Domestic Car Exports to Drop 43% in April... Concerns Over Chain Bankruptcies Among Parts Suppliers"

Korea Automobile Manufacturers Association Conducts Survey Targeting 5 Domestic Complete Car Manufacturers

Hyundai Motor Ulsan Plant Yard (Photo by Yonhap News)

[Asia Economy Reporter Kim Ji-hee] Due to the global spread of the novel coronavirus infection (COVID-19), it is forecasted that domestic automobile exports in April will be halved. It is pointed out that liquidity support worth 33 trillion won is necessary to prevent a chain bankruptcy of finished car and parts companies.

On the 19th, according to a survey conducted by the Korea Automobile Manufacturers Association targeting five domestic finished car companies, automobile exports this month are expected to decrease by 43% compared to the same period last year, to 126,589 units. This is because demand in overseas markets, excluding China, has sharply contracted due to the COVID-19 situation. In the case of Hyundai Motor Company, sales offices in five major European countries including Italy and Germany, as well as in India and Mexico, have been closed.

Most domestic finished car manufacturers anticipated that exports would decrease by about half as new car transactions in major countries have virtually come to a halt. Renault Samsung Motors and SsangYong Motor forecast decreases of 72.9% and 51.1%, respectively. Hyundai Motor Company and Kia Motors also expect export decreases of 39.1% and 48.7%, respectively, while Korea GM anticipates a 31.2% decline.

If exports decrease, domestic finished car companies will inevitably suffer damage. As of last year, 6 out of every 10 vehicles produced were exported overseas.

The situation in the domestic automobile parts industry, which includes about 9,000 companies, is even more severe. Even large tire companies have stopped their factories and entered emergency management systems.

According to the industry, parts specialized companies have seen sales plummet and cash flow dry up since February due to disruptions in finished car production caused by the COVID-19 impact. Commercial paper (CP) issued by first-tier parts suppliers as payment for deliveries amounts to 7.2 trillion won annually. The association believes that without government support such as bill acceptance, loan maturity extensions, and tax reductions, chain bankruptcies of parts companies will become a reality in the second half of the year.

The association estimates that the liquidity scale immediately needed by domestic finished car and parts industries exceeds 32.8 trillion won. This is the capital required for operating funds to keep factories running, loan maturity extensions with financial institutions, and export financing.

The association's position is that to overcome the crisis in the automobile industry, the central bank must expand liquidity supply while clearly prioritizing industries. They also argue that the reduction of the individual consumption tax should be extended at least until the end of the year to revitalize the domestic market, and that acquisition tax reductions should also be considered.

The automobile industry is expected to propose these matters to the government at a meeting with Minister Sung Yun-mo of the Ministry of Trade, Industry and Energy on the 21st.

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