Hyundai Motor to suspend South Korea production as China virus hits parts supply

The flu-like virus has killed more than 420 people and spread to about two dozen nations, sparking fears for global economic growth and stirring the markets

Hyundai Motor said it will suspend production in South Korea, its biggest manufacturing base, becoming the first major automaker to do so outside China due to disruption in the supply of parts resulting from the coronavirus outbreak. Many global automakers, including Tesla, Ford, France's PSA Peugeot Citroen and Japan's Nissan and Honda Motor, have already suspended some plants in China this week in line with government guidelines.

The flu-like virus has killed over 420 people and spread to about two dozen nations, sparking fears for global economic growth and rattling markets, with Shanghai's stock index losing some $400 billion in market value on Monday. Hyundai's decision to power down assembly lines at home could delay its recovery from a sales slump.

Hyundai recently turned in its best quarterly profit

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The automaker recently turned in its best quarterly profit in over two years and said it was on track for higher profit margins, aided by more sales of sport utility vehicles such as the Palisade and Kona. Hyundai already stopped production of the popular Palisade over the weekend due to a shortage of components from China.

Most of Hyundai's South Korean factories will be fully idled from February 7, while some production lines are expected to restart on February 11 or February 12, a union official said, declining to be identified given the sensitivity of the matter. Schedules for suspension will vary by production line, a Hyundai spokeswoman said.

The idling, which had been discussed by Hyundai management since Monday, was due to a shortage of auto parts called wiring harnesses, auto industry officials said. Hyundai and its affiliate Kia Motors, together with the world's No.5 automaker, do not keep large stocks of the part, which is mostly made in China, said Lee Hang-koo, a senior researcher at Korea Institute for Industrial Economics & Trade.

Hyundai has seven factories in South Korea

"Hyundai and Kia may be more affected as they tend to import more parts from China than other global automakers," Lee said. Hyundai's reliance on China has grown sharply as it built a huge production capacity in the country several years ago when its business was booming there, he added. "South Korean parts makers followed and built their own facilities along with Hyundai," Lee added.

Hyundai has seven factories in South Korea, catering to the local market and the United States, Europe, Middle East and other countries. Hyundai's production at home accounts for about 40% of its global output. South Korea imported $1.56 billion worth of auto parts from China in 2019, versus $1.47 billion in 2018, trade data shows. Japanese trading house Mitsui & Co has also warned that the virus outbreak may slow manufacturing activities in automobiles and other sectors.

As manufacturers struggle to get factory workers back to production line due to extended holidays and suspension of public transport systems in some cities, China's trade agency said it would offer force majeure certificates to companies struggling to cope with the impact of the virus.

Related topics : Coronavirus