Parts Shortage Seems to End... But the Car Industry Remains Uncertain

Vehicle Semiconductor Supply Issues "Expected to Resolve Sooner Than Anticipated"
Hyundai Motor Intermittent Overtime at Factories...Signals of Parts Shortage Easing
Challenges After Normalization and Stabilization
Disappearance of Supplier Dominance Raises Concerns Over Competitiveness Decline and Corporate Attrition

Hyundai Motor Ulsan Plant Production Line

[Asia Economy Reporter Choi Dae-yeol] There is a growing outlook that the supply issue of automotive semiconductors will be resolved sooner than initially expected. The pessimistic forecasts that semiconductor supply would remain tight for the next 2 to 3 years due to ongoing parts shortages since COVID-19 have improved, according to automakers. The fact that Hyundai Motor's Ulsan plant has intermittently conducted overtime work on some vehicle assembly lines this month is seen as a sign of easing parts shortages.

According to industry sources on the 30th, Lee Dong-seok, the head of Hyundai Motor's Ulsan plant and the executive in charge of production and safety, recently informed the labor union at a management briefing that the global backlog of orders stands at around 1.3 million units. Its affiliate Kia is also reported to have a backlog exceeding 1 million units. While this is the highest level ever recorded, the previously sharp upward trend appears to have slowed. Until earlier this year, Hyundai and Kia's backlogs had surged to about 2 to 3 times the levels seen during the COVID-19 period, reaching around 1 million units each.

Since then, COVID-19 reemerged in some parts of China, leading to repeated lockdowns, and the Russian invasion of Ukraine caused factory closures and logistics disruptions. Despite these challenges, the industry explains that the worst-case scenario was avoided. The vehicle production process requires numerous suppliers to manufacture parts and logistics to deliver them on time in a tightly coordinated manner. Missing even one or two parts can halt the final assembly line, causing problems. This is the background behind the global backlog of new vehicle deliveries. For automotive semiconductors, which have very few contract manufacturers worldwide, many had expected it would be difficult to stabilize the situation quickly.

Although parts supply has not returned to past levels of smoothness, there are signals of easing in various places. Hyundai Motor's Ulsan plant conducted overtime work in five factories in mid-month. Considering that parts shortages had previously forced assembly lines to remain idle, even resulting in 'empty pitch' situations where lines were left unused, this marks a significant improvement.

Currently, overtime work is scheduled sporadically to operate production lines, but both inside and outside the company, there are expectations that overtime will gradually increase, especially for some SUV models. Some imported car brands have also recently increased their domestic shipments significantly, which is expected to somewhat alleviate delivery backlogs. An industry insider said, "Customers currently have to wait as long as over a year after signing a purchase contract," adding, "However, for some models, waiting times are shortening, suggesting that the 'worst hurdle' may have been overcome."

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According to market research firm AutoForecast Solutions, as of the fourth week of May this year, production disruptions caused by parts shortages have affected about 1.8 million vehicles worldwide. This number is expected to exceed 2.6 million by the end of the year. However, except for North America and Europe, other regions have maintained similar levels compared to the previous week.

The key issue is what happens after parts supply normalizes faster than expected and a stable production and sales system is established. Even if companies manage to cope with the current backlog, once a stable production network is in place, the current 'supplier's market' dynamics could suddenly disappear. An industry insider said, "For now, production and sales have focused on high-profit models to improve overall company profitability, but if the industry returns to a 'normal system' as before, the situation will change completely," adding, "Companies or models with weaker competitiveness could be phased out faster than expected."

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