Automakers squeeze suppliers to absorb costs and shortages
"The price of copper rose more than 50 percent compared to the end of last year," said a CEO of an auto parts company that is a second-tier supplier to Hyundai Motor.
"Sales were not that bad until the beginning of the year as the volume of orders from Hyundai Motor and Kia rose," He said. "But the number of orders started to decrease since the second quarter."
According to the Korea Iron & Steel Association, the price of cold-rolled coil, the key material for making automobiles, rose to $1,117 per ton in May, a 57-percent increase year-on-year.
Copper traded at $10,226 per ton on the London Metal Exchange in May, nearly doubling on year. Copper is a key material for many industries, including the automobile, building construction, electronic products and home appliance industries.
"Our customer companies including first-tier companies and car makers try to cut the prices of auto parts," said the CEO of another auto parts company. "The car companies and their first-tier suppliers wish to cut prices to subcontractors in order to afford the high fixed costs, such as the high annual salaries of their high-level employees."
Labor shortages are another problem.
The transition to electric vehicles (EVs) requires the companies to hire new workers. As EVs do not need conventional engines or transmissions, the types of components that are needed to make EVs are different from those for internal combustion cars. Auto-parts companies are struggling to bring on production workers who can develop or produce components for EVs.
"The problem of labor shortages has been worsening as the country moves to EVs," said Lee Moon-ho, head of the Working Organization Innovation Research Institute, an education and consulting firm. "Local governments and large companies must work together to foster students so that they can work in production plants."
More Koreans, especially high school graduates, have become reluctant to work at production plants of small-and mid-sized manufacturing companies.
"There are some 1,000 specialists in Korea's automobile industry, and most of them belong to large companies," said Lee Hang-gu, a senior analyst at Korea Automotive Technology Institute. "For small- and mid-sized companies, it is not easy to offer those workers higher salaries to attract them or invest more money on developing research facilities."
The auto-parts makers performed poorly last year, according to data from the Korea Automotive Technology Institute.
The ratio of operating income to sales, a key gauge of profitability, for auto-parts makers that have fewer than 300 employees declined 0.7 percentage points to 1.3 percent in 2020. This means if they sold 1,000 won ($0.89) worth of auto parts, their income was 13 won.
The ratio of operating income to sales for companies that have more than 300 employees was down 2.1 percentage points to 2 percent last year.
BY KIM YOUNG-JU [firstname.lastname@example.org]