The ongoing strikes in the automotive industry are raising concerns about significant losses for parts suppliers. As factories halt production, first to third-tier suppliers must adjust their delivery schedules, leading to immediate impacts on revenue and cash flow for smaller firms lacking financial resilience. With the transition to electrification already straining their foundational strength, the added risk of strikes poses a serious challenge.
According to industry sources, the recent strikes by automakers have heightened tensions within the parts sector. On July 13, the Hyundai Motor Company union began partial strikes, halting production for up to four hours a day, while the Korean GM union refused overtime and weekend work.
Hyundai's partial strikes are expected to stop production lines for a total of 12 hours over three days, with day and night shifts leaving work two hours early until July 15. The anticipated production shortfall is around 5,000 vehicles, which, at an average revenue of approximately 42.65 million won per vehicle, could result in losses exceeding 200 billion won.
Suppliers are also facing inevitable cascading losses. When assembly plants cease operations, the delivery volumes to suppliers are immediately adjusted, affecting not only first-tier suppliers but also second and third-tier companies.
Given the nature of the automotive industry, where many suppliers are interconnected, the impact of strikes can be substantial. As of the end of last year, Hyundai had 1,494 first-tier suppliers, with 347 located domestically. When production plans change, orders naturally decrease for both first and lower-tier suppliers.
The parts industry has been under pressure for years due to the transition to electrification and a decline in new vehicle projects. While demand for components related to internal combustion engines, such as engines and transmissions, is decreasing, investment in electric vehicle parts is increasing. Additionally, competition from low-cost Chinese parts is further weakening the industry.
Suppliers that rely heavily on specific automakers face greater burdens. Delays in new vehicle development and securing production volumes can lead to lost opportunities for new orders. Korean GM has not received new vehicle development projects since the launch of the Chevrolet Trailblazer in 2020, limiting its role to an export production base.
This has made growth difficult for parts suppliers. Earlier this year, GM Technical Center Korea (GMTCK), the research and development arm of Korean GM, was reported to be working on new vehicle development, but details regarding specific models, domestic launch plans, and mass production schedules have not been disclosed. As delays in new vehicle development and securing production volumes continue, first-tier suppliers and other parts manufacturers are increasingly concerned.
Small parts suppliers may find themselves facing existential threats. Reduced deliveries and production disruptions directly lead to revenue shortfalls, cash flow issues, and inventory burdens, which many cannot afford. Diversifying clients is challenging, and even as parts demand decreases, fixed costs such as inventory storage, logistics, and labor remain.
The key issue is whether the strikes will be prolonged. Short-term or partial strikes may allow for recovery of parts demand through overtime or weekend work, but if the strikes extend, the shock to the parts industry could snowball.
Lee Taek-sung, director of the Korea Automotive Industry Cooperative, stated, "In a situation where many difficulties and challenges are piling up both domestically and internationally, I hope that everyone can come together with wisdom and unity to negotiate amicably to avoid imposing a significant burden or impact on the automotive industry and related parts suppliers."
* This article has been translated by AI.
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