Hyundai-Kia signs fair trade pact with suppliers

By Kim Yoo-chul

Staff reporter

The Hyundai-Kia Automotive Group has inked a fair trade pact with its 2,700 domestic parts suppliers, a move seen as improving the quality of its finished products.

Under the pact, the group will run a low-interest loans program to help them stabilize financial soundness for effective management, while the automaker will pay promptly for key components, Hyundai said in a press release, Tuesday.

The company also added it will expand what it calls its "partnership programs" to second- and third-tier suppliers to give a steady uprising momentum to sustain their businesses.

To make the program effective, Hyundai-Kia is planning to monitor payment conditions on a regular basis.

"Maintaining a healthy partnership with suppliers has emerged as a top corporate concern as the group is expanding globally. Quality in products is everything," a spokesman for the automotive group said.

The group will increase its internal budget for suppliers to 82 billion won ($78 million) from 58 billion won. It has set up a 100 billion won loan program to help them cover operating expenses, and will maintain its 264 billion won "mutual guarantee program."

"Additionally, we are planning to create a task force to give technological support in an organized manner," the spokesman added.

The agreement came at a time when the automotive group has been seeing smoother car sales overseas.

The automaker reported an increase in sales for the month of May in the United States, the group's critical market.

The automaker sold 80,476 cars last month, an increase of 27 percent from the previous year.

Analysts say that Hyundai-Kia has witnessed improved turnover and profitability in the past few months, which has been helped by its growing vehicle portfolios, focusing on fuel efficiency, as well as value for money, considered to be the prerequisites for changing customer preferences globally.

Hyundai-Kia is looking at achieving global sales volumes of 5.5 million this year - up 17 percent year-on-year, with 3.5 million coming from Hyundai and the remaining 2 million from Kia.

"According to the situation, Hyundai-Kia will further expand such programs," the spokesman said.

Big manufacturing firms are notorious for squeezing profits out of subcontractors, and in the process depriving them of cash that can be used to improve their competitiveness.

However, this practice is being removed by and large through efforts both by the firms as well as the government's strong guidance.

Hyundai's signing of the fair trade practice pact is seen as one of such effort being made by a conglomerate.

Samsung and other chaebol have already made such a symbolic move. Recent statistics show Korea's economy relies excessively on chaebol.