Hyundai suspends all assembly lines in S. Korea over parts shortages

Hyundai Motor headquarters in Seoul. The company is now expanding into Indonesia. Photo: AFP/Jung Yeon-je. Sketched by the Pan Pacific Agency.

SEOUL, Feb 7, 2020, Yonhap. Hyundai Motor Co., South Korea’s biggest carmaker by sales, on Friday suspended all of its domestic car assembly plants due to a lack of parts from China amid the spreading coronavirus outbreak, with other local automakers taking similar steps or considering doing so, Yonhap reported.

Hyundai Motor plans to halt its assembly plants by Monday, while its affiliate Kia Motors Corp. is planning to bring all of its local assembly lines to a halt Monday.

Hyundai and Kia began to reduce output at their domestic plants last week as their China-based South Korean suppliers halted their production since Jan. 24 when the Lunar New Year holiday began.

The Chinese authorities called on manufacturers to stop operations until Feb. 9, a week after the end of the holiday, to keep the potentially fatal virus from spreading further.

“If auto parts factories in China resume operations on Feb. 10 or 11, production losses from a lack of components will be limited. If not, the carmakers will likely suffer heavy output losses from an extended suspension,” a Hyundai spokesman said over the phone.

It is the first time Hyundai has temporarily halted all of its domestic production lines since 1997, when the Asian financial crisis affected local manufacturers and Mando Corp. stopped supplying parts to the carmaker.

Hyundai has seven domestic plants — five in Ulsan, one in Asan and one in Jeonju — and 10 overseas plants — four in China and one each in the United States, the Czech Republic, Turkey, Russia, India and Brazil. Their combined capacity reaches 5.5 million vehicles.

Kia has eight domestic plants — two in Gwangmyeong, three in Hwaseong and three in Gwangju — and seven overseas ones — three in China and one each in the U.S., Slovakia, Mexico and India. Their overall capacity is 3.84 million units.

“We will decide whether to extend the plants’ suspension beyond Monday depending on supply conditions from China,” a Kia spokesman said.

South Korean carmakers are concerned about hefty production losses as the rapidly spreading coronavirus outbreak is aggravating shortages of parts supply from China.

On top of Hyundai and Kia, three other carmakers — GM Korea Co., SsangYong Motor Co. and Renault Samsung Motors Corp. — have already suspended their plants or are considering reducing output.

On Tuesday, SsangYong Motor stopped the operation of its sole car assembly plant in Pyeongtaek, 70 km south of Seoul, and will maintain the suspension until Feb. 12 due to the supply crunch.

SsangYong also said it will decide whether to extend the period depending on situations in China.

GM Korea said it is closely monitoring the situation involving the novel coronavirus to minimize the impact on production.

Renault Samsung Motors Corp., despite being the least reliant on Chinese auto parts among the five automakers, said Wednesday it plans to suspend its sole plant in Busan, 450 km southeast of Seoul, for several days next week.

The company said it has received some components from our Renault alliance partners like Nissan Motor Co., but it may suffer parts shortages next week if parts plants in China do not resume operations Monday.

Among the carmakers, Hyundai is expected to suffer the biggest production loss if its plants’ suspension period is extended.

If Hyundai’s plants remain suspended for five days, it will suffer a production loss of 30,000 vehicles worth between 600 billion won (US$505 million) and 700 billion won, the company estimated.

To minimize any impact from parts shortages, Hyundai and Kia said they are in talks with local auto parts companies that have production facilities at home and abroad for the supply of necessary parts.

“In the case of a prolonged shortage of parts from China, we have asked local parts makers to fully operate their domestic plants, and we plan to buy more components from their plants in Southeast Asia,” the Hyundai spokesman said.

The fallout from the virus could deal a further blow to Hyundai and Kia, which have been struggling with declining sales in China, the world’s biggest automobile market, in the past three years.

In 2017, the carmakers’ sales were weak there due to the lingering impact of political tensions between Seoul and Beijing over the deployment of an advanced U.S. missile defense system, THAAD, in South Korea. Their combined sales in China fell 22 percent to 909,000 vehicles last year from 1,161,000 units a year earlier.

In April 2019, Hyundai shut down one of its five plants in China, and in May, Kia suspended one of its three plants there due to lower demand.

If the suspension period ends within a week, industry insiders expect carmakers will be able to fill the output gap through overtime work.

But given China accounts for 30 percent of the country’s total auto parts imports in terms of value, a prolonged output halt at the carmakers would deal a serious blow to their first-quarter earnings, analysts said.

South Korea imported US$5.34 billion worth of auto parts in 2019 — $1.56 billion, or 30 percent, from China — according to the Ministry of Trade, Industry and Energy.

The trade ministry said Friday it will take all necessary efforts to minimize the economic fallout of the supply disruptions on local carmakers.

To tackle supply shortages, the ministry said it will seek to simplify the import processing for auto parts from Vietnam, Cambodia and the Philippines; provide financial subsidies to local auto part makers, including loans for the expansion of production lines; and fund their research and development projects.

Seoul said it is working closely with the Chinese government to win approval to reopen factories supplying auto parts for the country.

“Through the measure, we will promptly ease uncertainties in the supply of auto parts and normalize the production of cars. We will also brace for the possible extension of the situation over a longer period,” Industry Minister Sung Yun-mo said during a meeting with economy-related ministers.

In a meeting of business leaders on Friday, Korea Chamber of Commerce and Industry (KCCI) Chairman Park Yong-maan said companies need to take preemptive and bold steps to avoid any serious impact of the virus outbreak on their businesses.

Kong Young-woon, president of Hyundai Motor’s strategy planning division, told reporters after the meeting that the company is in talks with Chinese officials to help resume operations of parts plants operated by South Korean suppliers early next week.

Hyundai has also asked the Chinese authorities to extend help in making quarantine systems ready in those plants, he said.

As for resumption of domestic factories, the president said the company will focus on resuming the production of popular models such as the flagship Palisade sport utility vehicle and the GV80 SUV sold under Hyundai’s independent Genesis brand.

Meanwhile, Hyundai Motor Group plans to extend 1 trillion won in financial support to help its small and medium-sized parts suppliers ride out the coronavirus impact.

Some 300 billion won will be provided as operating capital for its suppliers, and the remaining 700 billion won will be delivered in the form of early payments for their components, Hyundai said.

South Korea has reported 24 confirmed coronavirus cases as of Friday.

By Choi Kyong-ae

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