Single auto parts maker shakes S Korea's auto industry

A single auto engine parts maker shook South Korea's auto industry. One of the country's auto parts makers went on strike on May 18, resulting in suspended production of some models in top automaker Hyundai Motor and its affiliate Kia Motors.


Workers at Yoosung Enterprise started a walkout on Wednesday last week after the management and the labor union failed to agree on working conditions and wages. Yoosung provides key engine parts such as piston rings, cylinder liners and camshafts for Hyundai, Kia, GM Korea, Renault Samsung Motors and Ssangyong Motor.


Following 11 rounds of failed negotiation, unionized workers at Yoosung staged a sit-in and the management shut down two of its five factories in the nation in response to the labor dispute. Angry union members occupied production lines and blocked other workers from entering the plants.


Just one week into the strike, South Korea's automakers fell into malfunction. Industry leader Hyundai and its unit Kia were hit hardest among the five local automakers.


Kia was forced to halt output of its Carnival passenger minivan starting May 20 at its Sohari plant as the strike at Yoosung disrupted diesel engine output. Hyundai stopped production of some sport utility vehicle (SUV) models such as Tucson ix and Santa Fe from May 22, according to e-mail sent by Hyundai to Xinhua.


The labor strike at one of its engine parts supplier crippled production of its commercial pickup truck Porter and passenger minivan Starex on May 24 due to exhausted engine inventory. Hyundai expected the prolonged strike to disrupt all of its passenger and commercial vehicles from May 25.


The malfunction in Hyundai and Kia stemmed from a single engine component, or piston ring. Yoosung has supplied about 70 percent of the piston rings used in popular models made by the two automakers.


Even though the three remaining local automakers were not affected immediately by the strike, they would have fallen into production disruptions if the labor dispute is protracted.


Yoosung has provided around 50 percent of piston rings used in SUV models produced by GM Korea such as Orlando and Captiva, according to the report by Mirae Asset Securities. GM Korea might have been blocked from producing those models should the strike run through until May 29.


Renault Samsung has entirely relied on Yoosung's camshafts used in its SM5 2.0, the production of which would have been stopped by the prolonged strike from May 26, Kim Yun-ki, an analyst at Mirae Asset Securities in Seoul, said in a report released on Monday.


Fortunately, the strike was not prolonged further. South Korean police on Tuesday raided the Yoonsung production lines occupied by striking workers and dispersed them, ending the weeklong walkout.
Shares in Hyundai and Kia plunged on Monday on worries about the prolonged strike. Hyundai plummeted 5.39 percent to close at 228,000 won two days ago, with Kia dropping 4.69 percent to 70,000 won.


The two automakers, however, rebounded on Wednesday as the police crackdown wiped off concerns over disrupted output. Hyundai rose 0.43 percent to 231,500 won, and Kia ended unchanged at 70, 400 won although the benchmark KOSPI dropped 1.26 percent.


Kim at Mirae Asset noted Hyundai and Kia will rapidly normalize its assembly lines because the cycle time of producing piston rings is relatively short. Market watchers reportedly expected the two auto firms to normally operate its production lines from Thursday.


Despite the rapid normalization, the South Korean auto industry exposed its fatally weak point, or unified parts supply channel.


Hyundai and Kia have bought around 70 percent of their core engine part, or piston ring, from Yoosung, and GM Korea has purchased some 50 percent. Renault Samsung's camshafts used in one model all came from Yoosung.


Hyundai should have lost 48,000 vehicles worth 827 billion won (753 million U.S. dollars) should the strike continue till the end of this month, Hyundai said. The prolonged strike should have caused a 1.2 trillion won of damages to around 5,000 parts suppliers of Hyundai and Kia.


It was totally due to a single engine part worth 1,000 to 2,000 won each. A car is made up of more than 2,000 components, so disrupted production in any single part will inevitably lead to halt of operations in automakers and their parts makers.


However, it was a serious problem local automakers were not able to find alternative parts supply channels in contrast to foreign firms who have a global network. Local auto manufacturers may need to diversify its supply system in preparations for another potential output disruption.
(Source:http://news.xinhuanet.com)