50% of Auto Parts Companies Report Profit Decline Due to Raw Material Prices and Labor Shortages

"Need for System Improvements for Foreign Production Workers"

The automotive parts industry is facing difficulties in the short term due to high raw material prices and labor shortages. There are opinions that measures such as improving systems for foreign production workers and expanding short-term working capital demand are necessary.

The Korea Automobile Industry Association held the 34th Automobile Industry Development Forum on the 27th at 9:30 a.m. at the Automobile Hall under the theme "Measures to Enhance Competitiveness of Automotive Parts in the Transition to Future Cars."

At this forum, Eun-kyung Kwon, head of the Research Office at the Korea Automobile Mobility Industry Association (KAMA), said in her keynote presentation, "According to the management condition survey of parts companies conducted by KAMA, there is a significant difference in perception between the first half's business performance and the sales conditions for the second half."

Seventy percent of automotive parts companies expect their sales in the second half of this year to be similar to or worse than the first half.
[Photo by Korea Automobile Manufacturers Association]

Among the 80 respondent companies, 44 companies (55.7%) reported an increase in sales in the first half compared to the previous year. However, only 24 companies (30.4%) reported an increase in operating profit, indicating a slowdown in profit margin growth. Regarding the outlook for the second half, 70% of companies answered that sales would either remain similar to the first half or deteriorate due to weakened profitability caused by increased costs such as raw materials.

Automotive parts companies recently identified high raw material and energy prices (27.4%) as the biggest challenge related to the business environment (up to 3 multiple responses allowed). The next major difficulty is workforce management issues such as labor shortages and rising labor costs (24.5%).
[Photo by Korea Automobile Manufacturers Association]

The survey results showed that the top short-term factor affecting management was cost increases such as high raw material and energy prices (27.4%). This was followed by labor operation difficulties such as labor shortages and rising labor costs (24.5%). As mid- to long-term challenges, companies cited the deepening polarization of future car transition capabilities among parts companies.

(The graph on the left) Regarding the recent raw material price levels, automobile parts companies most frequently selected "somewhat high level" (47%). The factor worsening financial conditions was identified as the rise in raw material prices (42%).
[Photo by Korea Automobile Manufacturers Association]

To improve the short-term management conditions of parts companies, Director Kwon suggested ▲system improvements to secure stable foreign production workers (such as extending stay periods) ▲expansion of short-term working capital demand due to accumulated debt and continued high interest rates ▲activation of domestic demand to respond to demand reduction (such as reintroducing individual consumption tax cuts). He also stated that incentives for investment to expand the future car production base are necessary.

Gang Nam-hoon, chairman of the Korea Automobile Industry Association, emphasized, "To normalize production and overcome difficulties, it is urgent to improve the foreign worker system to secure stable production labor and expand policy funds to secure operating funds for our parts companies." He added, "To enhance the competitiveness of parts companies during the future car transition period, it is necessary to sustain and expand domestic investment incentive systems for future car production bases."

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