'300 Billion+α' Financial Guarantee for the Auto Parts Industry (Comprehensive)

Investment by Hyundai Motor and Korea GM, etc.

Reference image (Photo by Yonhap News)

[Asia Economy Reporter Kim Hyo-jin] The government and automakers have joined forces to launch a special guarantee program worth '300 billion KRW + α' to support auto parts suppliers hit hard by the novel coronavirus disease (COVID-19).

On the morning of the 15th, Eun Sung-soo, Chairman of the Financial Services Commission, announced this plan at the 'On-site Meeting to Revive the Automotive Industry through Win-Win Cooperation' held at the Korea FT research institute, a first-tier supplier of Hyundai Motor Company in Pangyo, Gyeonggi Province.

The meeting was attended by Chairman Eun, Sung Yun-mo, Minister of Trade, Industry and Energy, Gong Young-woon, President of Hyundai Motor Company, Kaher Kazem, President of Korea GM, Heo In, CEO of KB Kookmin Bank, Jin Ok-dong, CEO of Shinhan Bank, Ji Sung-kyu, CEO of Hana Bank, officials from policy banks including KDB Industrial Bank, and representatives of major suppliers of Hyundai Motor Company and Korea GM.

According to the Financial Services Commission, the government plans to soon finalize and launch a guarantee program by the Korea Credit Guarantee Fund that focuses on supporting small and medium-sized and mid-sized parts suppliers with relatively low credit ratings, based on the third supplementary budget and contributions from automakers.

The government will inject 10 billion KRW through fiscal funds, and Hyundai Motor Company will contribute 10 billion KRW in the form of a contribution. Korea GM is also expected to finalize its contribution amount soon through discussions with the government and others. The government is also negotiating contributions with local governments where related companies are located.

The support scale is expected to exceed 300 billion KRW. A government official said, "To provide support with a sense of urgency, we intend to quickly coordinate with relevant parties on parts that have not yet been finalized."

Chairman Eun Sung-soo also stated, "A more fundamental solution is for small and mid-sized suppliers to improve their credit ratings and have easier access to financing," adding, "We plan to consider various support measures, including providing consulting services to companies by utilizing the expertise of policy financial institutions."

Since the first COVID-19-related financial support measures were introduced on February 7, the government and financial sector have injected about 5.1 trillion KRW into the automotive industry as of the 22nd of last month. This includes 1.9 trillion KRW in new loans, 3 trillion KRW in maturity extensions of existing loans, and 200 billion KRW in export-import financing.

Sung Yun-mo, Minister of Trade, Industry and Energy, assessed, "We expect the export situation of the automotive industry to gradually improve from June, but the industry's capacity has significantly weakened due to the accumulated burden of fixed costs."

Minister Sung also pointed out, "Due to the nature of the automotive parts industry as a capital-intensive industry, the debt ratio is high," adding, "Many companies face difficulties in credit ratings as mold and equipment investments are concentrated in line with various new car launches."

He emphasized the need to expand financial support, saying, "There are blind spots in support for auto parts companies with low credit ratings and mid-sized companies," and urged, "I hope financial institution heads encourage and motivate their branches to ensure that support measures operate smoothly so that our parts companies can feel the effects."

Commercial banks attending the meeting expressed their intention to actively implement maturity extensions for existing loans to mid-sized parts suppliers.

The Korea Credit Guarantee Fund stated that it plans to actively support not only small businesses but also mid-sized companies with weak credit through the special guarantee program.

In particular, part of the guarantee will be operated in the form of a 'project joint guarantee,' which will conduct guarantee screening on a specific production project basis of automakers, while facilitating easy guarantee support for low- and medium-credit suppliers participating in production.

The automaker industry signed a win-win guarantee agreement with the government on the 11th to protect parts suppliers and stabilize the supply chain. The government has launched an electric vehicle technology development project worth 380 billion KRW this year and plans to fully initiate an autonomous driving technology development project worth 1 trillion KRW starting next year.

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