'Post-COVID Aftermath' for Small and Medium Car Parts Companies, 6 out of 10 Operating at a Loss

50 Domestic Small and Medium Car Parts Companies 2Q Performance
62% Operating Loss... 36% Turned to Deficit from 2Q
Deterioration of Liquidity Indicators, Concerns Over Realization of Liquidity Crisis in August
Half of Companies Have Current Ratio Below 100%

[Asia Economy Reporter Suyeon Woo] Due to the impact of the novel coronavirus infection (COVID-19), the performance of domestic small and medium-sized automobile parts companies is deteriorating. Among the top 10 domestic automobile parts companies in the second quarter of this year, six reported losses, and with the recent resurgence of COVID-19 dampening expectations for performance improvement in the second half, concerns are growing that the 'August liquidity crisis' may become a reality.

According to Korea Investment & Securities and the semi-annual reports of each company on the 21st, 62% (31 out of 50) of major domestic automobile parts companies recorded operating losses in the second quarter of this year. In particular, 36% (18 companies) that had barely maintained profits until the first quarter turned to losses in the second quarter, and 26% (13 companies) continued to post losses following the first quarter.

The combined sales of the 50 companies amounted to 6.5448 trillion KRW, a 24.6% decrease compared to the previous year. The combined operating loss was 23.7 billion KRW, turning to a deficit compared to both the previous year and the previous quarter. Until the first quarter, the companies posted a combined operating profit of 14 billion KRW, but from the second quarter, the deficit trend resumed in earnest, pushing some companies toward liquidity crises.

Earlier, the Korea Automobile Manufacturers Association warned that exports in the second quarter of this year had halved compared to the previous year due to COVID-19, and that liquidity crises could arise from July. In fact, examining the liquidity indicators of these 50 parts companies at the end of the second quarter showed that 72% of the companies were below the appropriate level. Looking at the current ratio (assets that can be liquidated within one year / liabilities due within one year) of the 50 companies, 72% (36 companies) had a ratio below 200%.

The current ratio, which indicates a company's ability to repay short-term loans, is generally considered good at around 200%, and a ratio below 100% is diagnosed as a risk level. However, as of the end of the second quarter, 46% (23 companies) of parts companies had a current ratio below 100%. This means that even if all assets that can be liquidated within one year are sold, it is insufficient to cover debts maturing within one year. Among the 50 companies, those with the lowest current ratios were Codaco (27%), Iljitech (39%), and Deutsche Motors (53%).

In a July survey conducted by the Korea Automobile Manufacturers Association targeting 50 parts companies, companies responded that the average funds needed to overcome liquidity crises were about 7.4 billion KRW, but the actual secured amount was only about 41%. Since the decline in exports that began in the first quarter, the operating rates of parts factories have also sharply dropped, and although factory operations have recently normalized, considering the payment time lag, the liquidity crunch in July and August is becoming a reality.

Moreover, with the recent resurgence of COVID-19 domestically, the sighs of the parts industry are deepening. A representative from the Korea Automobile Manufacturers Association said, "Although government support for parts companies has begun, companies with low credit ratings are still in the blind spot of liquidity support," adding, "The risk of workplace closures due to the recent COVID-19 resurgence is further exacerbating the difficulties of the parts industry."

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