As Korean vehicle makers are forced to halt production due to lower global demand, an analyst has warned that the global coronavirus crisis will negatively impact South Korea's domestic industry in the first half of the year. This is in spite of the country's relatively successful handling of the public health crisis.

Kia Motors has said it is planning to suspend production at three of its nine vehicle assembly plants in South Korea later this month due to the sharp fall in global vehicle demand caused by the COVID-19 coronavirus.

This followed an announcement by Hyundai Motor earlier this month it planned to suspend production at its assembly plant in Ulsan due to falling overseas demand.

Kia said it planned to halt production at two factories in Gwangmyeong, south of the capital city Seoul, and one in Gwangju for one week starting on 23 April 2020.

These three plants are responsible for producing most of Kia Motors' export models, including the Sportage and Soul SUVs.

Animesh Kumar, Director of Automotive Consulting at GlobalData, notes that South Korea was among the initial countries that were impacted by the coronavirus COVID outbreak. The country was in a deep turmoil in February and early March as the country practised social distancing and most businesses, including automotive plants and dealerships remained temporarily shut. The situation, however, has now improved as around 70% COVID-19 patients have now recovered and there has been a decline in the number of new cases.

However, the problem for South Korea's auto industry has shifted to stalled demand in major export markets.

"In February 2020, vehicle exports from South Korea witnessed a decline of 25% year-on-year. OEMs encountered supply chain disruptions, primarily for components sourced from China. Automotive assembly lines were temporarily shut down due to the outbreak of virus across South Korea," Kumar says.

Despite a normalising market situation and recovering domestic demand in March 2020, key Korean OEMs including Hyundai and Kia continued to feel the impact of COVID-19 as the demand plunged in key export markets – US and Europe. Overall exports of vehicles from South Korea fell by 17.6% to 479,388 units in the first three of months of 2020.

"Both Kia and Hyundai, the two major exporters of built up vehicles to the US and Europe, have indicated plans for temporary production halts once again. Kia has made the decision in order to combat the oversupply amid declining overseas demand. Kia's passenger car exports from Korea declined by 33.3% in first three months of 2020.

Hyundai and Kia have also suspended production at most of their overseas plants in the last two months, including in India, China, Europe and US.

Kumar expects passenger vehicle exports from South Korea to remain impacted by the coronavirus crisis in the first half of 2020. "Moreover, cutting down of production by OEMs will lead to a domino effect on components demand," he maintains. "OEMs, which are heavily dependent on exports, need to optimise and re-plan production considering the existing uncertainties."