The Korean auto parts industry is in a deep crisis due to the COVID-19 outbreak, the Korean government has finally helped the related companies.
At a meeting of the Central Emergency Economic Countermeasures Committee on May 28, Deputy Prime Minister and Minister of Planning and Finance of Korea Hong Nam-ki said that the central government of South Korea will cooperate with automobile manufacturers and Local governments to set up a “symbiotic guarantee fund” of 500 billion won (approximately 2.9 billion yuan) to help Korean suppliers of small and medium-sized vehicles parts that have been hit by the SARS epidemic.
Auto Parts export cut
With the outbreak and the continued spread of the disease in Europe and the United States, the Korean auto industry, which is highly dependent on exports, has been hit greatly. According to statistics from the Ministry of Commerce, Industry, and Energy of Korea and the Korea Automobile Industry Association (KAMA), the export volume of Korean automobiles decreased by 36.3% year-on-year to $2,391 million (about RMB17.1 billion) in April this year, the largest decrease since June 2009 (-38.1%).
According to the Ministry of Commerce, Industry, and Energy of Korea, as the epidemic spread in Europe and the United States, major European and American countries issued social bans in April, and some countries temporarily closed their national doors, resulting in the closing of car dealers and a serious blow to car sales. Seven percent of the world’s automobile factories, including Hyundai and Kia’s overseas factories, are shut down.
The automotive parts and components industry has been more hit than the complete car business. In April, the export of Korean auto parts and components decreased by 49.6% year-on-year to US$1,022 million (approximately RMB 7.3 billion). China’s automobile market has not yet fully recovered, and most European automobile manufacturers temporarily shut down their factories, resulting in a significant reduction in Korean auto parts exports in April.
Both the Korean government and the related companies have expected such a situation. According to the Ministry of Commerce, Industry, and Energy of Korea, one of the most affected export commodities since April is automobile-related. Professor Sung Tae-Yoon of the Economics Department of the Yonsei University of Korea said earlier, The number of confirmed cases in Europe and the United States increased sharply since late March, and Korean exports are expected to decline sharply from April, and this trend is likely to continue until July-September.
The crisis in the parts and components industry has intensified
The Korea Automobile Industry Association said that since the shutdown of the factory in February, the revenue of the parts and components companies has fallen sharply. Many parts and components companies are ready to cope with the worsening cash flow and cut their employees’ salaries.
According to the Korea Automobile Industry Association (KIA), the amount of loans from financial institutions to be returned by Korean component companies this year was about 2.4 trillion won (about RMB14 billion), while the annual amount of commercial bills issued by first-tier suppliers for the payment was as high as 7.2 trillion won (about RMB41.8 billion). The association is concerned that if the government does not take the aid of purchasing corporate commercial bills and extending corporate financing, the collapse of the parts suppliers will become a reality in the second half of the year.
The Korean auto parts industry has sent a signal to the government that the sustainability of the industry is threatened by the global decline in car sales during the epidemic, and that automotive parts and other export-oriented industries are neglected in the government’s rescue plan. In mid-April, the Korea Automobile Industry Association and other industry organizations launched a joint initiative to ask the government to provide 32.8 trillion won (approximately RMB190 billion) of economic assistance to Korean auto parts and components companies.
Compared to the fully-integrated motor vehicle enterprises such as Hyundai and Kia, which have strong capital, small and medium-sized component enterprises are relatively weak and have greater difficulty in financing. Hong said, Some small and medium-sized parts and components companies have excellent technology and supply them to the whole vehicle industry, but they are unable to finance or obtain guarantees due to low credit. We will provide financial assistance to these companies to ensure that the automobile industry ecosystem functions properly, said the government. The fund, which is jointly financed by the government and auto-makers, will be worth 500 billion won and will guarantee the loans of auto-parts companies.
Hong Nangji also stressed that we should thoroughly implement the prevention of the epidemic and at the same time seek to restart economic activities. To stimulate consumption, Korea will hold a two-week national shopping festival starting on June 26, 2020.