Auto Parts Industry "Liquidity Crisis Intensifies from July... Urgent Support Needed"

Automobile Industry Association Holds Industry Meeting to Hear COVID-19 Challenges
Expresses Difficulties Such as Export Decline, Liquidity Issues, and Strengthening Environmental Regulations

In April, Hyundai Motor Company's Ulsan Plant export shipment dock (Photo by Yonhap News)

[Asia Economy Reporter Kim Ji-hee] "Since the beginning of this year, we have invested our own funds to complete the development of major parts for new vehicles and planned to supply them to global companies. However, due to the novel coronavirus disease (COVID-19), export volumes have decreased, causing severe liquidity problems. Although we applied for guarantees using the automobile industry win-win agreement guarantee program established among government ministries, the Korea Technology Finance Corporation, and the completed car industry, it has been difficult or delayed to issue guarantee certificates due to the internal regulations of the guarantee institutions." (Auto parts company A)

The Korea Automobile Industry Association held meetings with the automobile industry on the 7th and 9th of this month to listen to difficulties related to COVID-19. Fifteen completed car and parts companies attended the meeting to share challenges such as decreased export demand due to COVID-19, liquidity issues, and the strengthening of automotive environmental regulations.

The parts industry lamented that exports sharply declined by 46.7% from April to June due to the impact of COVID-19, and liquidity difficulties have become serious since July. Since there is usually a two-month lag between exports and payment, companies were able to endure until June because payments for exports from January to March were received. However, with unprecedented reductions in exports from April to June, companies have fallen into liquidity crises.

Completed car company B, which receives parts from company A, stated, "If even one part cannot be procured, there is concern about the suspension of the completed car production line," and requested, "Please support the prompt resolution of company A’s liquidity problems."

Additionally, the parts industry pointed out that the application procedures for employment retention subsidies are excessively complicated. They also emphasized the need to implement the minimum wage and the 52-hour workweek flexibly, considering the industry's difficulties. For example, company C, which employs 150 workers, said, "We applied for employment retention subsidies in May, but the authorities require submission of individual employment retention (leave) plans for each worker and reapplication every time there is a change in work plans," lamenting, "We had no choice but to give up on the June application."

The CEO of company D, which operates factories in Korea and the United States, pointed out, "In the U.S., only two submissions are required when applying for employment retention subsidies: sales decline and employment retention plan. Therefore, our system needs improvement."

Regarding the recently promoted strengthening of environmental regulations, such as the Ministry of Environment’s plan for paid allocation of emission permits, parts companies unanimously agreed that "the timing is inappropriate." Since Korea has already introduced some of the world’s strictest environmental regulations, the introduction of new regulations is feared to impose additional burdens on the industry.

In addition to existing regulations, if the free allocation of greenhouse gas emission permits is changed to paid allocation, the automobile industry is estimated to bear additional costs exceeding 200 billion KRW from 2021 to 2025. Since most automobile sales occur overseas, implementing regulations that are not enforced in competing countries such as Japan, the U.S., and China, and strengthening them, is pointed out to weaken the competitiveness of Korean companies.

Jung Man-ki, chairman of the Korea Automobile Industry Association, said, "In a situation where the liquidity crisis caused by the sharp decline in global demand since April is becoming a reality due to the time lag between exports and payment receipt, government support measures such as the Industrial Stabilization Fund and the win-win agreement guarantee must be implemented promptly and without disruption." He added, "Especially for environmental regulations, there is a need for temporary suspension, and the introduction of additional regulations such as paid allocation of emission permits should be implemented only after the difficulties caused by the COVID-19 situation have been resolved."