South Korean carmakers badly hit by coronavirus

Rows of Hyundai Motor cars parked for shipping in the South Korean port of Ulsan. Hyundai suspended operations at its Ulsan complex because the novel coronavirus outbreak crippled China's industrial output of auto parts needed to produce cars.
Rows of Hyundai Motor cars parked for shipping in the South Korean port of Ulsan. Hyundai suspended operations at its Ulsan complex because the novel coronavirus outbreak crippled China's industrial output of auto parts needed to produce cars.PHOTO: AGENCE FRANCE PRESSE

SEOUL • The prolonged outbreak of novel coronavirus has taken a toll on South Korean companies, especially carmakers, due to their high dependence on various types of irreplaceable auto parts manufactured in China, according to industry insiders on Wednesday.

Four of South Korea's five major carmakers - Hyundai Motor, Kia Motors, SsangYong Motor and Renault Samsung Motors - have decided to temporarily suspend operations at their plants there due to the shortage of a crucial car part called wiring harness.

Renault Samsung was the latest to announce it is reviewing whether to suspend the production for two or three days from Tuesday, when the China-made wiring harness stocks will be depleted.

Supplies will inevitably be hit as the sourcing factory in China remains shut due to the extended Chinese New Year holiday and it will take two or three days for production to be fully mobilised, sources said.

According to industry data, some 100,000 manufacturing plants for car parts are located across China, responsible for 38 per cent of the global supplies.

The Chinese government has extended the holiday break with workplaces closed till last Sunday to curb potential exposure to the virus.

Of China's 31 provinces, 11 have extended the holiday period for all non-essential businesses.

Following the factory closures in China, South Korean carmakers are experiencing inventory shortage of wiring harnesses.

Wiring harness is an essential part of a vehicle, which serves a nerve network-like role by connecting electric signals inside the car. Handmade wiring harnesses are laid on the floor of the vehicles during the initial assembly.

"Wiring harness was never considered an auto part that is difficult to get. Many industry insiders viewed that it can be substituted by local-made wiring harness or those from factories in South-east Asian countries.

"That's why many carmakers keep stocks that can last for only a week," an official from a local carmaker told The Korea Herald.

He added that as different wiring harnesses are used for every car model, or even for the same model with different trims, it is not common for carmakers to order large quantities in advance due to complicated stock management.

According to market experts, wiring harnesses cannot be replaced or be compatible with other car parts.

"A vehicle is completed by assembling some 30,000 auto parts. Shortage of even one compatible auto part will put the brakes on production," said another industry insider.

Market experts felt that if the disruption of parts supplies from China continues, the industry's earnings shortfall this year is inevitable.

Market research firm IHS Markit predicted that if the coronavirus spreads rapidly across the country, it could trigger plant closures until the middle of next month, reducing output by more than 1.7 million vehicles annually - a decline of 32 per cent from last year.

Another market researcher Berstein said that major global carmakers such as Volkswagen and BMW will see at least a 5 per cent fall in sales.

Meanwhile, some experts pointed to the car industry's low dependency on plant operation automation as the reason carmakers are struggling.

According to industry sources, manufacturers in other sectors such as semiconductor, petrochemicals and display panels are seeing less damage from plant closures in China, as their production is done by robots through automated processes.

THE KOREA HERALD/ASIA NEWS NETWORK

A version of this article appeared in the print edition of The Straits Times on February 08, 2020, with the headline 'South Korean carmakers badly hit by coronavirus'. Print Edition | Subscribe