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December 18, 2018

Korea provides US$3bn support for ailing auto supply chain

The South Korean government on Tuesday said it will provide financial additional assistance to domestic automotive component manufactures struggling with liquidity problems following a drop in global sales by leading domestic vehicle makers.

By bcusack

The South Korean government on Tuesday said it will provide financial additional assistance to domestic automotive component manufactures struggling with liquidity problems following a drop in global sales by leading domestic vehicle makers.

The Ministry of Trade, Industry and Energy announced it is making available a further KRW3.5trn (US$3.1bn) in funding and loan guarantees to domestic auto parts makers struggling to cope falling sales and rising debt. The government had already agreed to provideKRW1trn in credit guarantees to support the local automotive supply chain.

Hyundai's global sales fell by 7.2% to 4,503,000 units last year, reflecting mainly weak demand in China and the USA, while Kia's sales were 8.4% lower at 2,730,000 units. With the two automakers renowned for driving tough purchasing deals, margins among their suppliers are typically extremely thin.

GM Korea earlier this year received additional support from its parent General Motors to help it manage spiralling debt due to weak sales and low capacity utilisation. The company closed its Gunsan assembly plant in May as part of a broad-based cost-cutting programme.

According to local reports, the government also plans to offer further consumption tax cuts for new vehicle purchases and introduce scrappage incentives for diesel vehicles next year help lift domestic auto sales.

It also said it will increase incentives for zero-emission cars and has set a target to have 430,000 electric vehicles and 65,000 hydrogen fuel-cell vehicles on the country's roads by 2022.

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