Production Cut

Carmakers Should Try to Turn Crisis Into Opportunity

The nation's major automakers have started cutting their production as part of efforts to tide over falling sales and increasing inventories amid the global financial crisis and rapid economic slowdown. They are now engulfed in the inevitable consequences of the U.S. financial meltdown and its impact on America's troubled Big Three automakers. The global auto industry is struggling to keep afloat in the face of the worst turmoil since the Great Depression in the 1930s.

Korean carmakers, which were subject to painful restructuring after the 1997-98 financial crisis, are now busy hammering out measures to head off another one. However, they have yet to figure out just how severe the downside risks they are likely to confront in the months to come will be. What's for sure right now is that they are at the entrance of a dark tunnel. Along with other industrial sectors, the automobile industry is expected to face hard times at least in the first half of next year due to an anticipated steep fall in both exports and domestic demand.

In this regard, local automakers have made the right decision to slash overtime, suspend weekend production, or temporarily shut down their plants. This is the first step in responding to sluggish car sales, especially luxury sedans and sports utility vehicles (SUVs) that are increasingly shunned by cash-strapped consumers.

Hyundai Motor, the nation's top carmaker, began to reduce overtime and stop running lines on weekends at its six local plants Monday in a move to cut its monthly output by 10 percent, or some 150,000 vehicles. It has also curtailed production at its overseas plants in the U.S., China, India and Turkey. Kia Motors, the country's second largest carmaker affiliated with Hyundai, has taken similar measures.

GM Daewoo Auto & Technology, the local unit of the ailing U.S. giant General Motors, has already decided to suspend one of two production lines at its main plant until Jan. 4. It also plans to stop all factory operations for eight days from Dec. 22. Ssangyong Motor, owned by China's Shanghai Automotive Industry Corp., has decided to send 350 workers on paid leave to curtail output. Renault Samsung, controlled by French automaker Renault SA, has also taken measures to cut production, while planning to close all its factories from Dec. 24 to Jan. 1.

Local automakers must learn a painful but valuable lesson from the Big Three automakers ― Ford, GM and Chrysler ― in order to survive the difficult times. They must figure out what will happen to those losing competitiveness. First, it is important to have cooperative labor-management relations. In particular, Hyundai has to pay more attention to its trade union that is notorious for strikes and other disputes. Unionists also need to change and move toward industrial peace.

The global auto industry is on the verge of cataclysmic change. Korean carmakers should no longer delay radical restructuring and managerial innovation. They can turn the crisis into a rare opportunity to emerge as the world's top makers by boosting their competitiveness through technology development and higher productivity.