| Seen above is an assembly line at a Hyundai Motor plant in Asan, South Chungcheong Province. Courtesy of Hyundai Motor |
By Nam Hyun-woo
Hyundai Motor's management and its union agreed to close all of its local production from Friday as the coronavirus outbreak is hitting component supply chains, which Hyundai must procure to manufacture vehicles.
On Tuesday, it stopped a manufacturing line in its plant No. 5 in Ulsan, which produces Genesis vehicles including the G70, the G80 and the G90. Following that, multiple lines will be suspended from operation and all of the company's domestic plants will stop from February 7 to February 10 or 11.
Prompting the company-wise shutdown is the shortage of wiring harnesses, which are supplied by three domestic firms _ Kyungshin, Yura and THN. The suppliers had been producing the harnesses at their respective plants in China, but will not be operating the plants until at least February 9, as the Chinese government ordered businesses throughout most of China to cease operations to prevent further spreading of the virus.
“We cannot measure the impact right now, but it seems clear that there will be setbacks in our production,” a Hyundai Motor official said. “As production decreases, an impact on sales or first quarter earnings is expected to be inevitable. And the question is how we can minimize the impact.”
Hyundai Motor and Kia Motors have been experiencing a slowdown in China sales. Hyundai Motor's joint venture Beijing Hyundai Motor sold 650,000 vehicles in China last year, down 17.7 percent from a year earlier. Kia Motors also ended up delivering 259,000 vehicles in 2019, down 30.1 percent year-on-year.
Since the numbers have already contracted prior to the coronavirus outbreak, analysts said the two companies' China sales will decline substantially, compared to other global carmakers in the region, such as Nissan, Renault, Honda, Peugeot and others. However, Hyundai Motor Group's bid to seek a rebound in the Chinese market may lose momentum, as China's growth rate is projected to drop to 5 percent or lower due to the epidemic, according to them.
Other automakers are also experiencing similar problems. SsangYong Motor, which also relies on a China-based supplier for wiring harnesses, stopped the production of all of its vehicles from Tuesday to February 12. Kia Motors has also reduced the number of vehicles made on its assembly lines.
“Automakers usually keep enough wiring harness inventory for a week, because it takes less than a week to receive the parts,” an industry official said. “Since wiring harnesses require a lot of manual labor, parts suppliers tend to keep their plants in China, but nobody ever expected such a value chain would be affected by the epidemic.”
Industry officials said automakers can overcome a week-long procurement setback through a temporary increase in workload. Though if the procurement setback is prolonged, damages will likely snowball, they said.
World top-tier auto parts maker Bosch also closed all its production locations in China following the government directives. Hyundai, Kia, SsangYong and other domestic carmakers use Bosch parts.
“Operations at all Bosch's locations in China have currently been shut down as a result of government directives and the shutdown is partly extended to February 13 depending on region,” Bosch said in a statement sent to The Korea Times. “We are constantly evaluating the situation… It is currently still too early to make any statements on its impact on our business.”
Worsening the matter is the virus outbreak may paralyze the Korean auto industry, as a growing number of carmakers facing setbacks in procuring necessary parts from China and deteriorating sales, industry officials and analysts said.
They said the industrial fallout of the epidemic hinges on the timing of Chinese factories', plants' and businesses' resumption of normal operation, and a noticeable blow to carmakers' first quarter earnings is inevitable if the spread of the virus does not slowdown in the near future.