The Korean car industry is suffering from slumping domestic and foreign sales, intensifying competition from Chinese rivals, rising wages and a strengthening Korean won.
The market shares of Korean automakers keep dropping in the U.S. and China, while imported cars are grabbing a bigger slice of the Korean market each year.
Hyundai's operating profit in the first quarter of this year nearly halved on-year to W681.3 billion (US$1=W1,076). GM Korea's domestic sales plunged 50 percent for three months running, while Ssangyong's sales fell 3.9 percent last month compared to March.
In the U.S., Hyundai and affiliate Kia's combined first-quarter sales fell seven percent and 14 percent compared to the same period of 2017 and 2016. The reason was their failure to shift their model lineup to respond to the growing craze for SUVs and other recreational vehicles.
The situation is even worse in China, where their sales plunged 34 percent from the first three months of 2016.
Meanwhile imports are grabbing a bigger slice of the domestic market, which used to be completely dominated by Korean cars.
In 2010, imported cars accounted for just 6.9 percent of the domestic market, but that had risen to 18.4 percent in the first quarter of this year. Imported car dealers have been offering a wider range of discounts, resulting in more cars that cost under W50 million. Industry watchers expect imported cars to account for more than 20 percent of the market in two or three years.
Analysts say Hyundai's biggest mistake was its failure to invest in new models. Hyundai and Kia spend W4-W5 trillion a year on research and development, a whopping 60 percent of Korean automakers' total investments in R&D.
But it pales in comparison what their foreign rivals like Daimler, GM and Toyota spend each year, which is about the double the amount. Lee Hang-koo at the Korea Institute for Industrial Economics and Trade said, "German auto parts maker Bosch spends some W7 trillion a year on R&D. You can develop a new vehicle for W500 billion, and Hyundai needs to bolster its R&D spending."
High wages and falling productivity are also to blame. It takes an average of 26.8 hours for a Korean factory to roll out a car, compared to 21.3 hours at GM in the U.S. and 24.1 hours at Toyota. Yet salaries here have already surpassed those of rivals abroad and are expected to continue rising in line with the minimum wage hike.
Even in acute crises, militant unions regularly down tools demanding higher pay and better benefits.
Kim Soo-wook at Seoul National University said, "The issues of militant unions and low productivity have been highlighted because of the crisis at GM Korea, but those problems are rampant across the industry here."
The strengthening won is also hurting Korean automakers, who export 80 percent of the cars they make, because it makes them more expensive. A Hyundai staffer said, "Due to the exchange rate and other factors, it will be difficult for us to achieve 10-percent-range operating margins from now on."
And Kim Yong-geun, the president of the Korea Automobile Manufacturers Association, said, "The labor market and government regulations are diminishing the appeal of Korea as an automotive production base. Without a major overhaul, car production in Korea will continue to drop, and the nation's manufacturing industry as a whole will shrink."
The auto industry is a microcosm of Korea's entire manufacturing sector. Now the engines that have propelled Korea's economy -- steel, shipbuilding and display industries -- are slowing down, and China, which was once the biggest market for Korean exports, has become a main rival across the board.
And in every sector the problems are the same -- high wages, low productivity and too much red tape.