Automotive Industry "Sales Expected to Decrease by 25% This Year Due to COVID-19... Considering Reduction in Business Activities"

Automobile Industry Association and Institute for Medium-sized Enterprises Survey Results on Vehicle Manufacturers and Parts Industry
"Average Sales Expected to Decrease by 17.6 Billion KRW This Year... 41% Liquidity Secured Compared to Required Funds"

Ulsan Hyundai Motor export loading dock (Photo by Yonhap News)

[Asia Economy Reporter Kim Ji-hee] The domestic automobile industry is expected to see a 25% decrease in sales this year due to the COVID-19 pandemic, according to a recent survey. Additionally, companies have secured only 41% of the funds needed to overcome liquidity crises.

The Korea Automobile Industry Association and the Korea Institute for Industrial Economics & Trade announced on the 23rd that a survey conducted from June 25 to July 17 among 130 completed vehicle manufacturers and parts suppliers, involving 637 workers, revealed these findings. Companies anticipate an average sales decrease of 17.6 billion KRW this year due to the spread of COVID-19, with an expected average sales decline rate of 25%.

The average amount of funds needed to overcome liquidity crises caused by COVID-19 was calculated at 7.4 billion KRW. However, the actual funds secured compared to the required amount currently stand at only 41% on average.

Two-thirds of the responding companies reported that their financing situation has worsened compared to before COVID-19. The most frequently considered or ongoing measure to respond to the COVID-19 situation was scaling down business activities (66.2%). Companies applying for government policy funds accounted for 29.4% of respondents.

Regarding the use of new loans, 63.2% responded that they would use the funds for payment of purchase costs. This was followed by labor costs (48.5%), facility investment (39.7%), and repayment of principal and interest on existing loans (36.8%). Only 11.8% of companies said they would use the funds for research and development investment.

Companies reported difficulties in financing due to insufficient loan limits, high interest rates, and excessive document submission requirements. For those using policy funds, the strict eligibility criteria and the amount of support being less than the required amount were cited as the biggest challenges. Complaints were also raised about excessive document submission requirements and demands for collateral and guarantees.

Accordingly, companies emphasized the urgent need for additional extensions of loan maturities to secure liquidity. They also responded that government operating fund support (50%), support and cooperation from banks (27.8%), and tax payment deferrals (26.7%) are necessary.

Jung Manki, Chairman of the Korea Automobile Industry Association, stated, “From April to June, the liquidity crisis caused by the sharp decline in global demand is becoming a reality from July onward due to the time lag between exports and payment receipt.” He added, “If some parts companies fail to overcome short-term liquidity crises, it could lead to the suspension of operations at completed vehicle manufacturers’ factories. Therefore, related measures such as the Industrial Stability Fund and Win-Win Agreement Guarantees must be implemented promptly on the ground.”

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