The engine of South Korea’s car industry sputters
of the Asan car suppliers’ union resemble a bygone era. Walls are decorated with fading photographs of past protests. Cigarette smoke wafts from the foyer, where workers in overalls lounge on battered sofas enjoying a break between shifts. Most are well into middle age.
Korean parts-producers are being squeezed. More have filed for bankruptcy protection since last autumn than at any time since the financial crisis in 2008. Plenty, including Yoosung, claim they are fighting for survival. Their troubles are a symptom of a deepening crisis in the industry. At the industry’s centre is a single giant firm: Hyundai Motor.
Hyundai’s global sales were stagnant at 96.8trn won last year. Net profit declined in 2018 for the sixth year in a row. Since 2014 its shares have underperformed major peers such as Toyota, General Motors and Ford, measured in dollars. Some reasons for this lie beyond Hyundai’s control. A weak yen boosted Japanese producers. The trade dispute between America and China, as well as separate threats by President Donald Trump to impose additional tariffs on Korean cars, did not help.
Many problems, though, are home-grown. Hyundai’s move upmarket in the past few years exposed it to fiercer competition. It missed the shift towardss in Europe, America, and most recently China. Its Genesis brand has lagged behind in the highest-margin premium segment. Half of its production capacity in China currently sits idle—aggressive expansion may have more to do with this than the boycott, thinks James Lim of Dalton Investments, an asset manager.
Mr Cho wants to convince them to pay more, by betting on future technologies such as hydrogen fuel cells and loosely defined “integrated mobility” . Yet Hyundai channels 3% of sales to research and development, compared with 6% at Volkswagen or Toyota’s 4%, according to Bloomberg. Mr Cho will not say if Hyundai plans to ramp up spending, only that it will be “investing in the new value chain”.
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