Chinese Boycott Takes Toll on Hyundai-Kia, Suppliers

An unofficial Chinese boycott of Korean businesses over the deployment of a Terminal High-Altitude Area Defense battery in Korea is taking its toll on Hyundai and Kia and their suppliers in China.

One Korean parts supplier has been running its factory at only 40 percent capacity since April. "We invested heavily to build a plant in Chongqing to supply parts to Hyundai's factory that is scheduled to open there later this year," an executive said. "At this rate, we will end up losing all the money we invested."

Hyundai and Kia released their combined sales in China for June on Monday, which plunged 63 percent from the same month last year. Hyundai sold 35,000 cars and Kia 17,000. Cumulative January to June sales were down 47 percent.

Some 510 Korean auto parts makers who followed Hyundai and Kia to set up production facilities in China are suffering. One industry insider said, "Most manufacturers are forced to operate at only 50 percent capacity, which has prompted their workers to leave."

Some 510 Korean auto parts makers who followed Hyundai and Kia to set up production facilities in China are suffering. One industry insider said, "Most manufacturers are forced to operate at only 50 percent capacity, which has prompted their workers to leave." 

Chinese automakers have resorted to patriotic marketing tactics by offering discounts and freebies to customers who cancel orders for Hyundais or Kias. On social media, there are pictures of intentionally damaged Hyundai or Kia cars aiming to spur the boycott. One Korean car dealer in China said the retaliation "is not overt, but very subtle so it is difficult to lodge formal complaints."

Hyundai and Kia's sales drops are even worse than what Japanese carmakers experienced in 2012, when Beijing and Tokyo were locked in a territorial spat. Back then, Japanese automakers suffered 37 to 58 percent sales declines in China over a three-month period.

But Hyundai and Kia suffered 52 to 65 percent sales declines from March to June. A Hyundai staffer said, "If we don't manage to recover soon, our sales and parts supply networks, which took years to establish, could fall apart."

Hyundai and Kia have been working hard to turn things around. Last month, Hyundai hired the former head designer at Volkswagen China, while Kia unveiled a compact sedan and SUV tailored to fit Chinese consumer tastes.

Hyundai plans to roll out a new model that it hopes will boost sales in China, but the outlook is far from rosy as long as the THAAD dispute continues.

Heo Yoon at Sogang University said, "If the government had sent a clear warning in the early stage of THAAD retaliation, such as irrational delays in Chinese customs or closures of businesses, by filing a suit at the World Trade Organization, the situation would not have gotten this bad. This missed opportunity played a part in exacerbating the situation."

But Korea was effectively rudderless at the time as President Park Geun-hye had just been impeached. Kim Tae-nyeon of the Korea Automobile Manufacturers Association said, "Hyundai should look for ways of overcoming this crisis by improving the quality of its cars, but the government also needs to tackle this serious problem since small and mid-sized parts makers are suffering."

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