February 05, 2020 09:46
Seven of Hyundai's car plants in Korea are coming to a grinding halt as parts supplies from China dry up because workers there are grounded by coronavirus.
Hyundai makes 20 passenger cars, trucks and buses at the plants, and the assembly lines in Ulsan stopped running on Tuesday, while others in Jeonju will wind down on Wednesday and Thursday. Hyundai plans to idle the plants for around 10 days, but it is uncertain whether they can resume if parts factories in China remain closed.
A longer closure could force affiliate Kia and remaining Hyundai plants to halt production as well, which would impact thousands of subcontractors and parts suppliers in Korea.
The key part that triggered the closure here is the cable harness, a bundle of wires that connect various circuits in a car. They are bulky and need to be custom-made for different models, and automakers keep only one or two weeks of inventory. There are local suppliers, but Hyundai and Kia source 75 percent of their cable harnesses from China because they are cheaper.
Ssangyong faces the same shortage and will halt production at its Pyeongtaek plant until next week. Kia only has enough supplies for this week.
GM Korea and Renault Samsung source parts from around the world but are not immune to this problem. A GM Korea staffer said, "Even if we use GM's global sourcing network, it's not easy to suddenly bring parts from the U.S. in bulk, so we could have problems if the shutdowns in China continue until next week."
Carmakers overseas are much less dependent on Chinese parts suppliers. Lee Hang-koo at the Korea Institute for Industrial Economics and Trade said, "Korea is feeling the impact of over-dependence on China because it sought to cut costs."
Hyundai customers will face inevitable delays in delivery. For example, customers who ordered the new Grandeur sedan have to wait two months already and those who bought the Palisade SUV six months. Now they will have to wait even longer.
Buyers of the GV80 premium SUV may end up canceling their orders due to the long waiting times. Hyundai is considering rescheduling the rollout of a gasoline version of the GV80 next month and U.S. exports slated to start in the second half of this year.
Experts warn that Korean businesses need to reduce their dependence on China. Lee Ho-keun of Daedeok University said, "Korean businesses have learned a new lesson from the huge impact of a regional epidemic on the global division of labor. It's not a good idea to put all your eggs in the Chinese basket."
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