Why Did the Excavator Company Partner with a Capital Firm?

[Asia Economy Reporter Sunmi Park] Mr. Kim Munsu (pseudonym, 50 years old), who planned to purchase an excavator worth 100 million KRW, intended to buy the product using installment financing from a capital company but decided to postpone the plan due to the interest rate soaring into double digits. Given the tight household budget amid high inflation, he judged that bearing an interest burden of up to 13% was practically impossible.

The construction machinery industry, which sells excavators, dump trucks, wheel loaders, and more, has started preparing measures to ease customers' cost burdens amid soaring interest rates.

According to the construction machinery industry on the 30th, Hyundai Doosan Infracore, the nation's top construction machinery manufacturer and seller, recently signed a business partnership agreement with KB Capital to support installment financing necessary for purchasing construction machinery. This is the first time Hyundai Doosan Infracore has partnered with a capital company to provide installment financing services. Earlier, Hyundai Construction Equipment also announced that it is preparing to launch a customer-exclusive low-interest financial product through a business partnership agreement with Hyundai Commercial for installment financing.

The construction machinery industry expects that new financial product support plans applying leasing and installment payments could be introduced as early as the first quarter of next year. Since the first quarter is traditionally the peak season for the construction machinery industry, it is the optimal time to attract customers who hesitated to purchase equipment due to high interest rates. The capital industry is also in the final stages of preparing to launch financial products, reviewing appropriate interest rate levels and installment methods.

Cooperation with capital companies can bring a much-needed boost to the construction machinery industry. Currently, the price of one excavator averages between 60 million KRW and 100 million KRW. Until now, there was no company-level partnership service, so individuals had to purchase using cash or loans. Those without the means to mobilize funds individually used installment financing through capital companies at interest rates around 12-13%, repaying the product cost over several months. Purchasing a 100 million KRW excavator with a 12-13% interest rate in installments results in annual interest costs of 12 to 13 million KRW. Moreover, as the base interest rate has recently risen sharply, the interest rate burden for using installment financing is rapidly increasing.

A construction machinery sales official explained, "About 30% of the volume planned for purchase through capital companies has been canceled recently due to rising interest rates," adding, "If done through company-level partnerships, customers with excellent credit ratings are expected to be able to use installment financing at interest rates in the low 9% range."

The construction machinery industry has benefited significantly from active infrastructure investment in China, but as the economic momentum has cooled due to the spread of COVID-19, the proportion of sales in China is gradually decreasing, making it urgent to expand the domestic market customer base. In the third quarter of this year, Hyundai Doosan Infracore's construction machinery sales in China amounted to 107.3 billion KRW, down 9.9% year-on-year. In contrast, sales in Korea and emerging markets increased by 21% to 450.5 billion KRW. Hyundai Construction Equipment also saw a 22% decrease in Chinese sales to 49.6 billion KRW in the third quarter.

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