Tuesday, September 25, 2018
S. Korean Auto Parts Supply Ecosystem May Collapse
Auto Parts Makers in Trouble
S. Korean Auto Parts Supply Ecosystem May Collapse
  • By Jung Suk-yee
  • April 17, 2018, 12:25
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South Korean auto parts supply ecosystem could break down due to slowing sales in China and the GM Korea crisis.
South Korean auto parts supply ecosystem could break down due to slowing sales in China and the GM Korea crisis.

South Korean auto parts suppliers are staggering due to lower sales in China, one of the biggest markets in the world, and the GM Korea issue.

Parts makers' woes have sparked concerns that the domestic auto component supply ecosystem could break down, hurting the competitiveness of Korean automakers,

The crisis of Korean auto parts makers that have entered the Chinese market is illustrated by the ongoing restructuring efforts of DAS Corp.

DAS Corp. established DAS (Beijing) Automotive Component, its first overseas subsidiary, in 2003. The Chinese affiliate's success encouraged the company to set up production lines in India, Brazil and Turkey as well as the United States and the Czech Republic. The company has also increased the number of its subsidiaries in China to nine. DAS currently has four wholly owned subsidiaries and five other Korea-China joint ventures in China.

However, the company started to restructure its China operations last year as sales dropped sharply. The restructuring efforts include the sale of DAS (Beijing) Automotive Component, one of the company's symbols.

Some relate the company's move to sell off the Chinese unit to the ongoing political controversy surrounding former President Lee Myung-bak, the alleged owner of DAS Corp.

However, the speculation holds little water as DAS is pushing for the sale of its Beijing unit in secret and it takes a long time to close the sale process.

The real reason may be the plunging sales of the Chinese subsidiary, which supplies everything it produces to Hyundai Motor Co. Hyundai Motor’s sales in China have dropped due to the THAAD dispute.

Markt watchers say that DAS is seeking to sell its subsidiary in Beijing because it is hard to see an upturn in performance in the future.

The sales of DAS (Beijing) Automotive Component fell slightly from 184.6 billion won (US$171.96 million) in 2015 before the controversy over the THAAD to 176.2 billion won (US$164.14 million) in 2016. The figure then plunged to 109.3 billion won (US$101.82 million) in 2017 after the controversy over the THAAD erupted.

The company's balance sheet recorded a surplus in 2015 at 3.9 billion won (US$3.63) million but posted a loss in 2016 and 2017 at 1.4 billion won (US$1.3 million) and 8.7 billion won (US$8.1 million), respectively.

There has been a continuing controversy over who owns DAS in South Korea. But the political controversy seems to have little to do with the company's move to sell off its subsidiary in China. 

Analysts say that what motivated DAS Corp. to push for the sale of its Chinese unit was its dim prospects. They note that the sale of the Beijing subsidiary could be the signal for restructuring of its other foreign subsidiaries.

A CEO from a South Korean auto component producer in China described the difficulty facing Korean companies this way: "Profits of auto parts makers have reached a limit as their plant operating ratio has fallen to the 60 percen level compared with two years ago, while fixed costs remain unchanged."

He added that as a result, auto parts manufactures have been striving to survive by cutting down costs. Some are considering selling their companies to Chinese firms that have an interest in the auto parts industry.

To make matters worse, auto parts companies in China would suffer a harsh blow if GM Korea files for court receivership. They are preparing for a crisis by downsizing their workforce and operations.

Another CEO from an auto parts company said, “The conflict over the THAAD issue has not been completely resolved so many suppliers haven’t received money for their parts deliveries yet. This is why many heads of suppliers are considering restructuring or leaving the parts business.”