Hyundai Kia Motors "Urgent Need for Short-Term Liquidity Support of 10 Trillion Won for Partners"

Hyundai Kia Motors May Production Decline Expected to Widen
Export Drop and COVID-19 Impact Likely to Persist Until July
Hyundai Kia Partners Require 10.7 Trillion KRW in Working Capital Over 3 Months
Over 66% of Auto Parts Firms Outside Government P-CBO Support Scope

[Asia Economy Reporter Su-yeon Woo] As sales plummeted due to the novel coronavirus infection (COVID-19), it has been revealed that Hyundai Kia Motors' suppliers require short-term liquidity amounting to over 10 trillion won for 3 to 4 months. There are growing concerns that if liquidity is not supplied in a timely manner by June, the entire ecosystem could collapse, as the credit rating criteria for companies to qualify for government liquidity support measures are unrealistically high compared to reality.

According to the Korea Automobile Manufacturers Association and Hyundai Kia Motors on the 22nd, the liquidity needed within four months by Hyundai Kia Motors' first and second-tier suppliers, which have the largest number of suppliers in Korea, is estimated at about 10.7 trillion won. At a meeting between Sung Yun-mo, Minister of Trade, Industry and Energy, and the presidents of five completed car companies held the previous day, Hyundai Motor Company President Gong Young-woon said, "The most important thing in the current crisis is liquidity response," adding, "Financial institutions on the ground are providing loans based on corporate credit ratings, so urgent liquidity supply is needed for companies that are not covered by policy support."

Oh Won-seok, chairman of the Hyundai Kia Motors Suppliers Association, also said, "Since March, export volumes have not been selling or orders have started to be canceled, and we expect the current situation to continue until mid-July," adding, "In the worst case, if sales decrease by 30%, more than 10.7 trillion won in liquidity injection will be needed solely for suppliers."

Minister of Trade, Industry and Energy Sung Yun-mo is giving opening remarks at the "Automotive Industry Meeting for COVID-19 Response" held on the afternoon of the 21st at the Korea Automobile Manufacturers Association conference room, meeting with domestic automakers and parts companies. Attendees included representatives from the five domestic automakers?Hyundai, Kia, Ssangyong, Renault Samsung, and GM Korea?as well as parts suppliers and the Korea Automobile Industry Cooperative. Photo by Kim Hyun-min kimhyun81@

Although Hyundai Kia Motors' overseas plants have gradually resumed operations since April, the sharp decline in overseas orders is expected to cause May production to decrease more than in April. Even if Hyundai Kia Motors' domestic plants continue to operate at low capacity, since 65% of domestic production is for export, suppliers expect the impact to continue beyond July.

The government's P-CBO program targets companies with a credit rating of 'BB- or higher,' leaving B-rated companies, which account for 66% of the 3,365 domestic parts suppliers, effectively outside the scope of government support. The industry argues that if more than 3 trillion won is not supported by June, the 'golden time' will be missed, leading to ecosystem collapse, and calls for relaxing the P-CBO issuance criteria to 'B rating or higher.' In the same vein, there were opinions that the government should support deferring payment of three months' sales receivables of first-tier suppliers for one year for companies unable to make payments from May to July.

With the operating rate of Hyundai Kia Motors' second-tier suppliers falling below 50%, the urgent issue of labor costs is also criticized for the ineffectiveness of employment retention subsidies due to complicated application procedures. A representative of a Hyundai Motor second-tier supplier said, "Due to the financial difficulties of first-tier suppliers, the funding channels for second-tier suppliers have also been blocked," adding, "At least to maintain employment, the complex application process for employment retention subsidies should be simplified."

The situation is worse for other completed car manufacturers and suppliers excluding Hyundai Kia Motors. Renault Samsung, SsangYong Motor, and Korea GM each estimate that exports in April will plummet by 72.9%, 51.1%, and 31.2% respectively compared to the same period last year. Dominic Signora, president of Renault Samsung, compared France's employment policies with the current situation and suggested designating the entire automobile industry as a special employment retention industry. He said, "The employment retention subsidy system is not suitable for emergencies like COVID-19," adding, "In France, flexible employment retention policies allowing half-day work are being implemented."

At the meeting that day, the automobile industry submitted a proposal to the government including an urgent liquidity support of 33 trillion won. If the COVID-19 situation prolongs, about 25 trillion won in liquidity will be insufficient for fixed costs such as facility operation and labor costs, and 17 trillion won will be required for trade system operation costs and overseas borrowing support, totaling an expected liquidity shortfall of 42 trillion won.

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