Automotive Industry Faces Half-Month Shutdowns... Is Production Halving Becoming a Reality?

Some Places Closed More Than Half the Time Except Weekends
Concerns Over Negative Production for 3 Consecutive Years

[Asia Economy Reporter Kiho Sung] Following China, confirmed cases of the novel coronavirus infection (COVID-19) have spread to major domestic industrial regions such as Daegu and Gyeongbuk, putting the automobile industry’s February production volume at risk of being halved. When considering 20 working days this month excluding weekends, many factories have already entered more than ten days of shutdown. Moreover, due to this COVID-19 situation, there is a high possibility that production disruptions will continue through the first half of this year, raising concerns that negative production growth could be recorded for the third consecutive year.

According to the automobile industry on the 25th, Hyundai Motor Company and Kia Motors recorded average shutdowns of 6.5 days and 5.4 days respectively during February due to COVID-19. Among them, Hyundai’s Jeonju plant (truck line) had the longest shutdown period of 12 days, which means it has already been closed for more than half of February’s working days. Following that, Ulsan Plant 1 and Ulsan Plant 5 Line 1 each had 9 days off. Kia Motors showed a similar situation. The Sohari plant and Gwangju Plant 3 were shut down for 10 days. Considering that last February had 19 working days excluding weekends (excluding the Lunar New Year holiday period), more than half of the working days have already been lost.

Furthermore, even when operations continue, the phenomenon called 'gongpichi' (running empty conveyor belts due to insufficient parts to assemble vehicles) is occurring because of parts shortages, so production volume is expected to be halved.

The three mid-sized automakers are also suffering from shutdowns. Korea GM’s Bupyeong plant stopped operations for 3 days. Renault Samsung Motors shut down for 4 days, and SsangYong Motor also had a 7-day shutdown. The number of shutdown days is likely to increase further as COVID-19 spreads more in the Yeongnam region, which is the base of the automobile industry. According to the Mining and Manufacturing Survey by Statistics Korea, in 2018, the Yeongnam region including Daegu, Gyeongbuk, Busan, Ulsan, and Gyeongnam accounted for 30.8% of all manufacturing businesses in South Korea and 34.1% of production value. The impact on the automobile industry is even more severe. For automobiles and trailers, 48.1% of businesses and 42.9% of production value are concentrated in the Yeongnam region.

Experts point out that the COVID-19 crisis is showing signs of becoming prolonged as the issue has shifted from parts supply problems in China to domestic problems. They advise reviewing existing countermeasures considering the possibility of long-term damage.

Senior Research Fellow Hanggu Lee of the Korea Institute for Industrial Economics and Trade said, "The fact that COVID-19 is rapidly spreading beyond China to domestic issues is worsening the situation. Given the current circumstances, it is expected that the negative impact of COVID-19 will last at least two months, making negative growth for the first half of this year and the entire year almost certain for the third consecutive year."