Car Parts Manufacturers Cry Out Amid Semiconductor Shortage Crisis

As the shortage of automotive semiconductors leads to a series of shutdowns at finished car factories, the automotive parts industry is facing a severe operational crisis as a result. Photo by Asia Economy DB

[Asia Economy Reporter Kim Heeyoon] Due to the global shortage of automotive semiconductors, domestic automobile parts manufacturers are facing a serious operational crisis. As first- and second-tier vendors to finished car manufacturers, these auto parts companies have no clear solutions, and this difficulty is expected to continue through the second half of the year.

According to the industry on the 13th, Hyundai Motor Company halted operations at its Asan plant following the suspension at the Ulsan Plant 1 due to the shortage of automotive semiconductors. As domestic finished car companies consecutively stop their plants, the impact is directly passed on to the automobile parts industry. Auto parts manufacturers are currently adjusting inventory levels to continue production, but with the prolonged shortage of automotive semiconductors expected, production disruptions are occurring.

The CEO of Company A, which supplies sensors for electronic components to finished car manufacturers, explained, "We are constantly contacting related companies in the U.S. and Taiwan and holding video meetings to secure related parts, but realistically, it is difficult to secure them until the end of this year." He added, "Even without this, business has been difficult due to the COVID-19 aftermath, and now that our customers have started production cuts due to parts shortages, we are facing a bleak outlook due to lack of operating funds."

As supply disruptions continue, about 50% of domestic automobile parts companies have begun reducing production. According to a survey conducted by the Korea Automobile Manufacturers Association targeting 53 auto parts companies, 48.1% of parts manufacturers reduced production due to the shortage of automotive semiconductors.

The industry cites securing operating funds as the biggest challenge. Although sales have decreased due to lower operating rates, fixed costs remain unchanged.

The CEO of Company B, a first-tier supplier to Kia Motors, lamented, "From the perspective of parts manufacturers, the only countermeasure we can take in the current situation is to adjust our financial operation plans. Even if our customers stop their production lines, our fixed cost expenditures remain the same, so we have no choice but to buy time through operating fund loans from financial institutions and delaying payments." He continued, "Last year, didn't the electronic parts industry face a crisis due to procurement disruptions of Chinese parts? The fragile domestic parts supply chain problem has worsened the crisis in conjunction with the global semiconductor shortage."

The industry is appealing for government support for companies experiencing temporary financial difficulties. In the earlier survey, 39% of respondents said that an expansion of government financial support is necessary, and another 39% responded that the criteria for financial support should be relaxed.

Kim Jungyu, the operating committee chairman of the Korea Automobile Manufacturers Association, emphasized, "As the financial difficulties of parts manufacturers become a reality, support through liquidity company guarantees (P-CBO) and tax payment deferrals should be expanded to prevent liquidity crises. In the long term, the government needs to prepare financial measures to reduce fixed cost expenditures by relaxing conditions for employment retention subsidies."

Meanwhile, the industry expects the automotive semiconductor shortage to continue through the third quarter. Global market research firm IHS Markit recently reported, "Due to the global semiconductor shortage, global automobile production is expected to decrease by 1.3 million units in the first quarter of this year," adding, "Supply stabilization is uncertain until the fourth quarter of this year, and recovery is expected to begin only in early next year."