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Experts Warn about a Rapid Decline of Korea's Automobile Industry
Korea's Auto Industry Backpedals for 4 Consecutive Years
Experts Warn about a Rapid Decline of Korea's Automobile Industry
  • By Jung Min-hee
  • July 5, 2019, 10:21
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Panelists discuss the future of the Korean automobile industry at the Third Automotive Industry Development Forum held at the Automobile Industry Center in Seocho-dong, Seoul, on July 4.

Korean automobile experts warned about a rapid decline of the nation’s automobile industry at a forum organized by the Korea Automobile Manufacturers Association (KAMA) on July 4.

Kim Joon-kyu, head of research study at KAMA, said, “South Korea is the only one among the world top 10 auto manufacturing countries that has shown a decrease in production for four years in a row.

Kim was one of the panelists at the Third Automotive Industry Development Forum held at the Automobile Industry Center in Seocho-dong, Seoul.

In case of Hyundai Motor, Kim said, labor costs are higher than Toyota and Volkswagen but labor hours per unit are 11 percent to 26 percent higher than Toyota, Ford and GM. On the other hand, Korea ranks low among major countries in labor management cooperation (24th) and labor flexibility (21st). The price gap between the Hyundai Elantra (the Avante in South Korea) and Toyota in the U.S. market dropped from 7 percent in 2005 to 1.3 percent in 2018.

As the car industry is falling, its employment is also on the decline. The number of employees in the auto industry decreased from 401,000 at the end of 2017 to 385,000 as of April this year. The workforce of first-tier suppliers was reduced by 8,000 from 294,000 to 286,000 last year because 20 first-tier component producers went bankrupt last year.

Experts say that domestic auto parts companies are being pushed out of the market due to a lower level of technology. The research & development (R&D) expense to revenue ratio of South Korean component producers stands at only 2 to 3 percent which is one third to fourth compared to that of advanced countries’.

The country is also short of experts. Demand for workers with skills in both automobiles and information technology (IT) is growing, but there are not enough experts.

In particular, South Korea also falls short of other advanced countries in core technology of the future market. The localization ratio of automotive semiconductors, which are the core parts of autonomous vehicles, is only 2 percent. The country lags behind advanced countries in core technology of electric vehicle (EV) batteries, while it even depends on imports for core components of hydrogen powered electric cars.

Kim Joo-hong, head of policy planning at KAMA, said, “With the era of eco-friendly car, including EV, 28 percent of South Korean companies manufacturing related components, such as engine and transmitter, or 2,886, are adversely affected. The component industry, which has entered the transition period, including strategic partnership with IT companies, will also not be able to avoid innovation.”


Meanwhile, Jung Man-ki, chairman of KAMA, stressed that the South Korean auto and component industry is collapsing at a fast pace. “Auto parts firms have faced a crisis due to automakers’ difficulties and 20 of them disappeared last year alone. Their combined sales shrunk nearly 10 percent, or 7 trillion won (US$5.99 billion) from 78 trillion won (US$66.72 billion) in 2014 to 71 trillion won (US$60.74 billion) in 2018, and their employment rate and operating profit are on the decline as well.”

Auto parts companies are struggling because domestic automakers show lower sales because of the slowdown of major markets around the world due to the trade dispute between the United States and China. However, Jung pointed out risks also come from government policies. He said, “Component companies are suffering from higher wage costs, shorter working hours, financing difficulties and lack of experts, which come all together. An increasing number of CEOs are seeking ways to survive for one to two years from now and considering closing down their plants. He also said they cannot even decide on the direction of future investment because of policy risks.