Supply crunch starts to squeeze Hyundai Motor

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Supply crunch starts to squeeze Hyundai Motor

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Workers at Hyundai Motor’s factory in Ulsan are in masks on their way to work last Friday. [NEWS1]

Hyundai Motor Group may have to halt production in Korea this week of several models because of shortages of supplies from China.

Last week, Beijing extended the Lunar New Year holiday to Feb. 9 to try to stem the spread of the Wuhan coronavirus. Regional governments sent notices to factories in their areas to halt operations. This was the second time for an extension of the annual holiday, which was initially supposed to end on Jan. 30.

Hyundai Motor’s management sat down with its labor union Monday to discuss temporary disruptions. In a message to company staff Monday morning, President Ha Eon-tae declared the situation a “global emergency,” hinting that a temporary shutdown was now inevitable.

“With China implementing limits to working days and the extension of production halts on our suppliers’ end, temporary closings of several of our production lines seem inevitable,” said Ha. “We will need to immediately resume production once the parts are made available.”

One specific auto part being discussed is the wiring harness, which refers to a bundle of electric wires inside a vehicle. Hyundai Motor Group has three suppliers for wiring harnesses, all headquartered in Korea. But they all have production in China.

A typical motor vehicle has up to 30,000 parts, and even a single gap can shut down a line. The wiring harness has to be installed early in the manufacturing process unlike back lights or side-view mirrors, which can be attached to a car later.

Each vehicle needs a wiring harness optimized to its size and design, so the inventory situation differs per model. Shortages for several Hyundai models started Monday, according to industry sources, and the situation is expected to expand to other models in the next few days.

On Monday, Kia Motors started slowing down production in its Hwaseong, Gyeonggi, and Gwangju factories.

“This is not a component that we stock for the long term in the first place,” said a Hyundai spokesman. “Due to the degree of customization per model, we usually place orders according to the volume of customer orders received.

“If the situation in China doesn’t improve, we’ll have to find other sources of supply - whether it’s importing from Southeast Asia or sourcing products domestically. But that will take time. Even if we start now, it’ll take at least a month to set up facilities for additional production.”

Among models that will be immediately affected by Wednesday are Hyundai Motor’s popular Palisade and Genesis GV80 SUVs. Last week, the company canceled plans for a weekend work shift for Palisade production at its Ulsan factory.

According to an internal report acquired by the JoongAng Ilbo, 20 of the company’s models will exhaust all of their wiring harness supplies by Thursday at 3 p.m.

Due to the same supply shortage of wiring harnesses, SsangYong Motor made a decision earlier last week to close its factory in Pyeongtaek, Gyeonggi, from Feb. 4 to Feb. 12. GM Korea and Renault Samsung Motors said their situations are not severe enough to stop any production but are said to be preparing for the worst.

“At the moment, the wiring harness is the only component known to be causing problems, but it’s likely that other auto parts are already affected as well,” said Lee Hang-koo, a senior researcher at the Korea Institute for Industrial Economics and Trade.

“Hyundai and Kia Motors have a higher dependence on Chinese suppliers, so coping with China-related issues like this one is a bigger challenge for them compared to other global competitors.”

BY SONG KYOUNG-SON AND KIM YOUNG-JU [song.kyoungson@joongang.co.kr]

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