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[Asia Economy Reporter Suyeon Woo] Wage cuts in the automotive parts industry, which has been hit hard by the novel coronavirus disease (COVID-19) crisis, are becoming a reality starting from the second half of this year. Automotive parts companies are struggling to survive by not only downsizing through the sale of idle assets and businesses to avoid the worst-case scenario of bankruptcy but also by reducing labor costs.

According to the industry on the 9th, Mobeis Electronics (formerly Seoyeon Electronics), a first-tier supplier to Hyundai Kia Motors, held a briefing session for executives and above on the 7th and announced plans to cut the annual salary of all employees by 30% from this month until the end of the year. It is also known that they proposed a plan to secure temporary liquidity by selling shares held by major shareholders to employees.

Mobeis Electronics is an advanced electronic parts company that develops and supplies integrated controllers for Genesis's handwriting recognition devices. It is recognized for its technological capabilities in the industry and consistently achieves annual sales exceeding 700 billion KRW. However, the company's profitability has deteriorated, recording net losses over the past three years.

Moreover, with the operating rate sharply dropping in the first half of this year due to COVID-19, the company is now in a position where it must worry about liquidity rather than profitability. A 30% wage cut plan for all employees is an unusual case in the industry. Although overseas automakers' plants barely resumed operations since May, there is still a significant amount of 'gongpichi' (operating production lines with empty conveyor belts), and inventory is piling up, so it will take a long time to normalize exports.

Although the government has introduced emergency liquidity measures for the parts industry, mid-sized companies caught between large corporations and small and medium enterprises are deprioritized. To receive government support for leave allowances, production lines must be halted for a certain period, but stopping factories is burdensome to maintain export transactions. A Mobeis Electronics official said, "This is an unavoidable choice to overcome the company's temporary difficulties," adding, "We will negotiate with the labor union as much as possible in a way that benefits both the company and employees."

Another first-tier supplier to Hyundai Kia Motors is also discussing wage cuts of about 20% for executives and 10% for employees, and many parts companies have implemented labor cost reductions through deferred performance bonuses and the introduction of a 3-4 day workweek with rotational leave. As sales plummeted to half of the previous year’s level by May, companies calculated that reducing fixed costs, which are paid first, is necessary to escape the liquidity crisis. Due to the manufacturing industry's characteristics, where various allowances such as performance bonuses and overtime pay constitute a large portion of salaries, employees' monthly take-home pay has also significantly decreased.

A representative from Company A said, "Since monthly wages have decreased, the number of employees taking on 'two jobs' due to financial difficulties is increasing," adding, "The costs of raising children remain the same, so to cover living expenses, they have to take short-term part-time jobs." A representative from Company B said, "There is not much we can do in response to the COVID-19 crisis," adding, "Securing liquidity through government support and self-help plans is the best option we have right now. We have to get through this crisis first."

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