Liquidity Crises of GM Korea Subcontractors Cause Concern over Collapse of Parts Supply Chain

GM Korea subcontractors appealed, saying, "Before the conclusion of the negotiation between the government and GM headquarters, the foundation for GM Korea part suppliers' survival is being shaken. Please put a brake on it.”

The Emergency Measure Committee of Parts Suppliers for GM Korea held a press conference at the Korea Auto Industries Cooperative Association in Seocho-dong, Seoul on March 21. “As the financial industry classified parts suppliers for GM Korea into companies subject to intensive watch and began to manage their loan limits and prune their credits, small financially weak second- and third-tier partners are facing serious liquidity crises,” committee members said. "If the situation is not properly solved, the parts supply chain itself will fall apart."

"GM Korea's weak domestic sales and exports sparked off a sharp drop in supply volume, worsening difficulties of parts suppliers," the committee said. GM Korea’s closure of Gunsan Plant pulled down the parts suppliers’ plant utilization rate to 50% to 70% and their sales 20% to 30% year on year."

Of 301 first-tier GM Korea part suppliers, more than 150 companies rely on GM Korea for over 50% of their sales and 86 partners for 100%.

"GM Korea's partners had used electronic bills which were due in 60 days received as payments by discounting them at a 3% interest rate but banks have begun to refuse to discount them,” said Moon Seung, chairman of the committee. “If discounts of 60-day bills issued to second- and third-tier partners by first-tier partners, small second- and third-tier partners will go bankrupt first, giving rise to the collapse of the parts supply chain and finally forcing first-tier partners to go under.

"We need a help to normalize the management of GM Korea partners in order to prevent the collapse of ecosystems and an employment crisis in the Korean auto parts industry," the committee said. "The central government, local governments, financial institutions, and other stakeholders should make a quick decision to protect jobs of about 300,000 workers, including those at first-, second- and third-tier parts and material suppliers and direct and indirect stakeholders of GM Korea, and automotive industry ecosystems."