These days, an increasing number of South Korean auto parts manufacturers are working with Chinese automakers. Industry analysts point out this would improve the quality of Chinese cars, posing a threat to South Korean carmakers such as the Hyundai Motor Group.
It is because of Hyundai’s slump that the auto parts manufacturers are opting for Chinese carmakers. Hyundai’s sales volume in China is showing no signs of improvement even after China’s THAAD retaliation. Specifically, the group sold 70,019 cars in China in October this year, showing a negative year-on-year growth. This year, the group sold 630,000 cars in the Chinese market, up 11% from a year earlier. This year’s goal, 900,000, is unlikely to be met though.
Analysts say Hyundai’s slump will continue for years due to structural reasons. They note that South Korean cars’ merits, that is, a high quality at an affordable price, are being diluted with Chinese automakers supplying more and more cheap yet quality products. Besides, German and Japanese carmakers’ luxury sedans, hybrid models and brand values are hard to surpass.
Not a few South Korean auto parts suppliers have entered the Chinese market together with the Hyundai Motor Group. Nowadays, their deficits are snowballing with Hyundai going through the slump in China and their factories in South Korea going through difficulties as well. According to the Korea Institute for Industrial Economics and Trade, more than 30% of medium-sized South Korean auto parts suppliers were in the red in the first half of this year. This is why an increasing number of them are searching for new partners.
This can lead to dire circumstances for Hyundai. At present, it is a couple of years ahead of Chinese carmakers in terms of engine technology, transmission technology, and other key parts. This gap can be narrowed at any time if the ongoing trend continues.
Hyundai’s bargaining power in China can be weakened, too. The group is currently running its manufacturing facilities in China via local joint ventures. The more Chinese companies become self-sufficient in supplying and procuring auto parts, the more vulnerable Hyundai will become to their demands for supply source replacement and lower supply prices. Last year, BAIC urged Hyundai to replace South Korean firms supplying auto parts to Beijing Hyundai with Chinese firms for the purpose of cost reduction. Hyundai refused to do so, and then auto parts supply and vehicle production had to be stopped for a while.