Due to the Impact of COVID-19, May Auto Parts Manufacturers' Operating Rates Drop to 30%

May Parts Suppliers' Operating Rates Drop by About 30%, Many Companies Affected
Parts Suppliers' Sales Plummet Up to 60% This Month
Expanded May Car Manufacturer Shutdowns Lead to Prolonged Parts Supplier Closures
Auto Industry Urges Inclusion of Automotive Sector in Government's Key Industry Fund Support

[Asia Economy Reporter Su-yeon Woo] Due to the impact of the novel coronavirus infection (COVID-19), factory shutdowns at domestic finished car manufacturers have increased, causing the factory operating rates of some parts suppliers in May to drop to around 30%. As parts orders from finished car manufacturers have decreased due to COVID-19, overall sales in the parts industry have sharply declined, and the shutdowns of parts suppliers are expected to be prolonged.

According to the results of the "COVID-19 Corporate Difficulty Support Center Operation Survey" released by the Korea Automobile Manufacturers Association on the 15th, the operating rate of 24 domestic automobile parts companies in May was over 30%. While the average operating rate of first-tier parts suppliers remained above 60%, the second-tier suppliers dropped to as low as 30%. The lowest operating rate of the parts industry, which was around 60% in mid-March, rose to 70% by the end of March but fell back to the 30% range in May.

This is due to the increase in factory shutdowns at finished car manufacturers in May caused by a decrease in overseas exports. Five domestic finished car manufacturers (Hyundai, Kia, Korea GM, Renault Samsung, Ssangyong) stopped operations at most domestic factories during the golden holiday period in early May, and have continued shutdowns mainly at factories and lines with high export ratios since then. The operating rate of domestic finished car factories was maintained above 80% until the end of March but dropped to above 60% in May.

Kia Motors' Sohari Plants 1 and 2 decided on additional shutdowns from the 22nd to the 25th of this month following the early May shutdown, and Kia Motors' Gwangju Plant 2 will halt production from the 25th to the 29th. Korea GM's Bupyeong Plant 1 will also enter a temporary shutdown for a week starting on the 25th, effectively limiting the number of working days this month to seven. Ssangyong Motor has also decided to shut down for eight business days this month.

Sales losses for parts suppliers are accumulating accordingly. Sales of first-tier parts suppliers this month are expected to decrease by 20-25% compared to the same month last year, while second-tier parts suppliers are projected to see a sharp decline of up to 60%. A representative from the Korea Automobile Manufacturers Association explained, "Due to the liquidity crisis caused by cumulative sales losses through May, companies that cannot sustain themselves are expected to emerge consecutively."

As finished car factories close in May, factory shutdowns at parts suppliers are also expected to increase. Among the 24 parts suppliers surveyed, half (12 companies) are currently on shutdown or are considering shutdowns in accordance with the schedules of finished car manufacturers' factories. Some parts suppliers have decided to close for the entire month of May, while others are operating on a three-day workweek or implementing a once-a-week shutdown by having all employees take annual leave every Friday.

Although the damage to the parts industry caused by COVID-19 is becoming a reality, most small-scale companies are unable to meet the stringent government support requirements and thus cannot even attempt to receive financial support. Among the cooperative companies of a finished car manufacturer, 27% of applicants for the government P-CBO acquisition were rejected due to low credit ratings, and liquidity supply has been delayed as many companies' screenings are postponed. Moreover, the recent 40 trillion won scale Industrial Stability Fund established by the government is focused on aviation and shipping, leading to growing calls for expanding support targets to include the automobile industry.

The industry emphasizes the urgent need for liquidity support measures such as easing financial support conditions for parts suppliers with insufficient collateral capacity, increasing loan limits and operating funds, deferring loan repayments, and providing low-interest loans. They also complain that the scale and conditions of employment retention subsidies are excessively strict, preventing companies from receiving practical help. Jeong Manki, chairman of the Korea Automobile Manufacturers Association, stated, "The government has introduced various measures, but the problem lies in on-site implementation," and emphasized, "Since the automobile industry ecosystem is facing a severe crisis due to demand collapse, factory shutdowns, and sales declines, timely liquidity supply is more urgent than anything else."

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