"Urgent Financial Support Needed for Car Industry"…Automobile Industry Association Submits Proposal to Government

Appeal for Financial Support to Address Prolonged COVID-19 Demand Contraction

The completed vehicles waiting at the Hyundai Motor Ulsan Plant yard last March (Photo by Yonhap News)

[Asia Economy Reporter Kim Ji-hee] The automotive industry is urging enhanced financial support in response to the prolonged COVID-19 pandemic. They emphasize the urgent need for timely assistance, including easing the credit rating requirement for Primary Collateralized Bond Obligation (P-CBO) loans to 'B- or higher,' shortening the processing period to four weeks, and doubling the credit guarantee limits of credit guarantee institutions.

On the 15th, the Automotive Industry Federation announced on the 16th that representatives from six member organizations held a meeting and adopted a proposal titled 'Urgent Resolution of Financial Difficulties in the Automotive Industry.' A survey of liquidity difficulties among first- and second-tier suppliers of the five major automakers revealed that despite the government's swift policy measures, improvements in support speed and detail are urgently needed.

Firstly, regarding P-CBO, 59% (38 cases) of issuance applications were rejected due to the credit rating restriction set at 'BB- or higher.' Additionally, the approximately six-week review period was identified as a factor hindering the resolution of financial difficulties. Therefore, the federation argued that the credit rating standard should be relaxed to 'B- or higher' and the processing period shortened to within four weeks. They also called for an additional expansion of the issuance scale by over 700 billion KRW.

They also proposed the need for additional government funding to expand guarantee and loan capacity through capital increases at institutions such as the Korea Credit Guarantee Fund (KODIT), Korea Technology Finance Corporation (KOTEC), Export-Import Bank of Korea, and Korea Trade Insurance Corporation. The federation pointed out, "The KODIT and KOTEC mutual growth guarantee programs have guaranteed a total of 1,148 companies and 570.2 billion KRW to date. However, applying normal guarantee standards without considering the special situation of liquidity deterioration caused by COVID-19, such as prohibiting overlapping guarantees and limiting guarantee amounts, limits the resolution of difficulties." They also noted that the Industrial Stabilization Fund has overly strict requirements for large company support, with only two out of 28 automotive sector applicants receiving execution, causing processing delays.

Furthermore, they plan to urgently request the government and financial institutions to implement measures including ▲recognition of overseas subsidiaries of automotive parts companies as collateral and shortening credit evaluation periods ▲expansion of export credit guarantee limits by the Korea Trade Insurance Corporation ▲extension of tax payment deferral periods and relaxation of repayment demands for corporate tax and value-added tax ▲and easing of employment retention subsidy requirements.

The federation anticipates prolonged demand contraction due to concerns over COVID-19 resurgence and accumulated economic downturn, despite recent recovery in major countries' automobile sales. Domestic companies saw exports recover to a 10% decrease level since July, but domestic sales turned to a 5.6% decline last month, indicating a renewed crisis. Operating profits of the three listed automakers?Hyundai Motor, Kia Motors, and Ssangyong Motor?plummeted by 41.3% in the first half of this year, while 84 listed automotive parts companies saw operating profits drop by 111.3%. Particularly, parts companies are experiencing the full impact of export declines since April this month.

Jung Man-ki, chairman of the Automotive Industry Federation, stated, "With the automotive industry's overall deficits expanding due to COVID-19, the survival of companies is uncertain, raising concerns about the 2020 wage and collective bargaining negotiations. While global foreign automakers are undertaking workforce reductions and restructuring for survival rather than labor disputes or wage increases, labor conflicts and excessive production cost increases in our companies should be minimized."

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