Poor Business Performance Triggering Alarm Bells
An alarm bell has sounded in Korea’s auto parts industry with China’s entry into a deflationary phase. Some companies are selling off their local subsidiaries in China or drastically downsizing their operations as demand for new cars has fallen in the country.
According to the electronic disclosure system of Korea’s Financial Supervisory Service on Aug. 19, HL Group’s auto parts affiliate HL Mando said in its latest semi-annual report that it has sold all of its shares in its Chongqing, China subsidiary. The Chongqing plant is HL Mando’s seventh production base in China, which mainly produces three major automotive parts -- brakes, steering wheels, and suspensions.
The Chongqing plant was initially expected to serve as a supply chain for western China, but the company ultimately decided to withdraw due to the poor business performances of its main customer, Hyundai Motor Group, and the contraction of local demand.
Some Korean parts companies, which supplied parts to the Chongqing plant, have already exited from the region. They include Yura Corporation, Kolon Glotech and Seoyon E-Hwa. More than 500 Korean parts companies entered China with Hyundai Motor Group.
“Korean parts companies that followed Hyundai and Kia into China have been reducing the scale of their business in China or pulling out of China one after another,” said an insider in the Korean auto parts industry. “To shut down their businesses they need to sell off their local factory facilities, but since the Chinese economy is so bad, there is no demand for them, so it is not easy for them to return to Korea.”