-It is difficult to lower the dependence on exports
As predicted by the Hyundai Motors Global Management Research Institute last year, 2020 global automaker sales were 87.3 million units. However, IHS Markit predicted that the global market would only sell 73.3 million vehicles due to the influence of Corona19. That is how 14 million units disappear in an instant.
Forecast forecasts for revised forecasts by region are 12.6 million units in the US, down 26% from 2019, 17 million units in Europe, down 17%, and 21.8 million units in China, down 14%. Of course, the premise of the decline is the extension of containment measures in each country, including factories, and the IHS Markit predicted the possibility to be 40%. In addition, if each country’s emergency stimulus package effects are insignificant, it warns that this year’s global new car sales will drop by 16 million units to 71.2 million units. In a word, it is a car crash.
Assuming that the estimated 14 million reductions this year apply to all countries that produce automobiles, the impact of the global auto industry is beyond imagination. If Korea decreases by 16% right now, 630,000 of the 3.95 million units produced last year will disappear. The government urgently lowered the individual consumption tax for automobiles to a limit of 1% to promote domestic demand, but it was not enough to digest exports.
Then the auto industry started asking the government for liquidity support. Purchase of government-owned financial institutions (7.2 trillion won) for primary and tertiary suppliers’ supply bills, expansion of purchase of primary bond-backed debt (P-CBO) (KRW 1 trillion), support for supply of liquidity related to finished cars and automobiles ( 7 trillion won) and car export finance support policy (15 trillion 200 billion won), including a whopping 30 trillion won. In the context of the rapid contraction of the global market, the export-oriented auto industry is judged to be difficult to recover in a short period of time, and if there is no support, the supply chain may collapse and the fundamentals of the main industry may collapse.
However, it is not unreasonable to say that it is not appropriate for Corona 19 to provide significant support to the automobile industry in that it affects not only automobiles but also other industries. In a situation where everyone is in crisis, large-scale support from the automotive sector may seem to boost certain industries. However, there are also opinions that preventive measures are needed as the supply chain collapses and global competitiveness disappears in an instant when few workers are hired and the difficulties of parts companies increase.
In the meantime, the support controversy has begun. Ssangyong Motors started selling assets to secure cash, and Hyundai Motor Group also started operating a crisis scenario. The focus was on minimizing cost expenditure and preventing sales declines in global markets as well as domestic demand. The reason for survival is not to increase sales, but to stop the decline as much as possible. Actual export requests are plunging, and the number of days of domestic plant operations is being adjusted.
Global companies including GM are also struggling to secure cash. GM cut the 69,000 wages by 20% in batches, and raised approximately 19 trillion won in cash by collecting cash. Toyota also borrowed 11 trillion won from the financial sector, and the Daimler Group is discussing with the financial sector to secure 13 trillion won. Since Corona 19 is basically an infectious disease that inhibits movement, the role of the transportation business providing transportation services and the companies that make and supply the products required for transportation must be reduced rapidly.
However, there are also concerns that the support of the automobile industry in each country may flow into ‘auto nationalism’. Most countries are predicting support for the automobile industry in that all countries that produce automobiles are affected. In fact, Europe and other priority targets are companies with headquarters and factories in their respective countries and regions. In this case, it means that nationalism that the company should first purchase the product of the taxed company is raised. In fact, GM, which was funded by the US government during the financial crisis in 2008, recovered short-term sluggishness thanks to the help of the “patriotic campaign” of civil organizations in the United States. However, as it could not lower its dependence on the US market, Hyundai Kia Motors quietly waited for time to pass.
Experts believe that the support of each country’s automobile industry under the influence of Corona19 is highly likely to stimulate nationalism of consumers in that country. Of course, based on past experience, Korean companies can move their arrows in that they have built factories and promoted localization around the world, but there are no windscreens where there are no factories. In relation to this, Professor Jae-yong Park of Ewha Womans University (research professor at the Faculty of Future Social Engineering) explains that Corona 19 can increase the likelihood of Hyundai Kia Motors’ ‘reduction in domestic factories and expansion of overseas factories’. This is because Korea is highly dependent on automobile exports and should avoid ‘car nationalism’. However, this is also a problem to think about after surviving, and now it is urgent to endure unconditionally.
Kwon Yong-joo Editor
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