What About Suppliers Amid Renault Samsung Motors Restructuring? Busan Chamber of Commerce Issues Urgent Monitoring Report

High-Intensity Restructuring Preparedness: Busan-Ulsan-Gyeongnam Partners Diversify Demand Lines to Overcome Crisis

Renault Samsung Motors Profitability Boost Leads Suppliers to Worry About "Unit Price Reduction Requests"

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[Asia Economy Yeongnam Reporting Headquarters Reporter Kim Yong-woo] As Renault Samsung Motors unveiled a high-intensity restructuring plan called the ‘Survival Plan,’ local partner companies are putting their efforts into self-help measures for survival.

Having gone through a fierce wage and collective bargaining process in 2019 and with the prolonged decrease in volume due to COVID-19 last year, many partner companies are striving to establish survival strategies through diversification of demand sources.

The Busan Chamber of Commerce and Industry (Chairman Heo Yong-do) released urgent monitoring data on the trends of partner companies in the Busan, Ulsan, and Gyeongnam (Bu-Ul-Gyeong) region regarding the Renault Samsung Motors restructuring announcement on the 25th. The survey targeted 60 Renault Samsung Motors partner companies in the Bu-Ul-Gyeong area.

According to the Busan Chamber, most partner companies reduced their workforce by about 20% on average and saw sales decline by 20-30% after experiencing the prolonged wage collective bargaining in 2019 and the COVID-19 situation last year.

Regarding the restructuring announcement, some partner companies anticipated some positive effects, but the majority expressed concerns that the restructuring, which emphasized profitability improvement, would lead to pressure for price reductions.

A partner company in Busan said, “After the restructuring is completed, the next step is expected to be price reductions for partner companies,” and a partner company in Changwon also stated, “There is a high possibility that price reduction pressure will be applied to partner companies from the perspective of profitability management.”

Partner companies generally showed a skeptical response about the future volume recovery prospects of Renault Samsung Motors. In particular, due to the characteristics of the Busan plant, which has few new models and no electric vehicle lineup, they viewed it as difficult to guarantee competitiveness from a long-term perspective.

A company supplying parts in Changwon pointed out, “Renault Samsung Motors is falling behind the automotive trend changes because it has not properly established an electric vehicle product lineup,” adding, “For normalization, securing short-term volume is important, but in the long term, it must shift away from a production lineup centered on internal combustion engines to secure competitiveness in future vehicles.”

Amid pessimistic short- and long-term management recovery prospects for Renault Samsung Motors, many partner companies are reportedly creating their own crisis-overcoming solutions through demand source diversification strategies.

A partner company in Busan said, “After the end of Nissan’s outsourced production of the Rogue, we have been overcoming difficulties by increasing the proportion of direct exports to Nissan.”

Another company said, “We are offsetting losses by expanding the proportion of parts related to electric vehicle batteries,” and one company revealed plans to expand the supply of electric vehicle battery covers to LG Chem in the long term.

There were also companies that expanded exports in the eco-friendly electric vehicle sector. One company was increasing the export proportion of electric vehicle parts for global brands, and another company was actively participating in the global supply chain of Renault Samsung Motors parts suppliers by supplying products to Tesla as well.

For Renault Samsung Motors and its partner companies to overcome the current difficulties, securing export volume of the new model XM3 and increasing domestic sales are expected to be key.

Renault Samsung Motors received production outsourcing for the XM3 from Renault Group headquarters to replace Nissan’s outsourced export volume of the Rogue, which ended in March last year, but due to COVID-19, the European market has not recovered, and production is being reduced even below the planned volume.

Recently, with the emergence of defect issues, domestic sales have also sharply declined, deepening partner companies’ concerns.

A company located in Gimhae said, “Sales are greatly affected by XM3 production and sales, so an increase in XM3 sales is directly linked to business improvement.”

A company in Busan also lamented, “Until last year, the popularity of the XM3 secured a certain production volume, but recently, due to engine defect issues, the volume is almost nonexistent.”

A Busan Chamber of Commerce official said, “Renault Samsung Motors’ restructuring directly translates into difficulties for local partner companies, so careful consideration by support organizations is needed to minimize partner company damage and prevent the restructuring from causing confusion in the local employment market.”

He also emphasized, “As partner companies’ movements to diversify demand sources are gaining momentum, this should be taken as an opportunity to expand local parts partner companies’ participation in the global supply chain through systematic support.”