Losing to China, Korean cars facing tragedy

China suddenly surpassed Korea in the field of car production, pushing Korean automobile industry into troubles.

Car production in South Korea has fallen for three consecutive years, creating tremendous pressure on domestic components suppliers. Not only that, the giant automaker of this country, Hyundai Motor, has been shifting its production line overseas.

Last year alone, the number of cars produced in Korea was only 4.03 million, a significant decrease compared to 4.66 million cars of the peak period in 2011, according to data from the Korea Automobile Manufacturers Association (KAMA).

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The Korean auto industry is falling with unexciting sales and many failed suppliers.

Consecutive falls

Over the years, Korea has always been at the top of the largest automobile manufacturers in the world, behind only the US, Japan and Germany. However, after losing its position to China and then being surpassed by India, now Korea is about to lose to Mexico, according to Maeil Business Newspaper (South Korea).

Hyundai Motor, which controls 70% of the domestic car market with its subsidiary Kia Motors, is now moving its production line to Mexico and India. General Motors has also closed a car factory in southwestern Gunsan city.

Difficulties are surrounding Hyundai and component suppliers. The US-China trade war and the cost of researching new technologies are believed to be reasons of this situation. That fact requires the Korean auto industry to change when the world's major suppliers join hands to form an alliance.

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Korean giant Hyundai Motor has shifted its production line to India and Mexico.

Hyundai exports about 60% of domestic cars to North America, Europe and the Middle East. The profitability of components factories and production lines in Korea has plummeted recently.

Sales of the Korean car industry have fallen to the bottom, currently accounting for only 10% of the country's exports.

A series of components suppliers went bankrupt

The first-tier steering wheel supplier for Hyundai applied for bankruptcy protection last December. Earlier, two other suppliers of Hyundai were taking charge of producing interior components and transmission also applied for bankruptcy protection.

Except for Kumho Tire, which was sold to a Chinese company last year, all Hyundai suppliers have serious problems. According to Korean, this is the first time Hyundai suppliers have such many losses after the 2008 financial crisis. This chain of bankruptcy applications proves that the crisis in the Korean auto industry is spreading.

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Korean cars are losing not only in Korea. In the picture is a murky showroom of Hyundai in China.

It is estimated that Korea has about 850 first-tier suppliers, 8,000 second-tier and third-tier suppliers doing business with automakers. Hyundai alone accounts for 80% of sales from first-tier suppliers. The company uses its unique position to require suppliers to reduce costs. On the other side, Japanese carmakers cooperate with suppliers, sharing profits in cases of technology progress or successful cost-savings.

In Korea, suppliers do not receive this encouragement. They face many limitations. They are prevented from doing business with foreign automakers. Meanwhile, Toyota Motor encourages suppliers to cooperate with other automakers.

This fact shows that the future of Korean automobile industry is very gloomy and it is unknown whether it will ever get better in the future.

 

 

 

By: Peter O'Neill

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