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| Seen above is the entrance to a Hyundai Motor plant in Ulsan on Feb. 10. The road shows no traffic as the plant was shut down due to the insufficient supply of auto parts imported from China. Yonhap |
By Nam Hyun-woo
The economic fallout of the coronavirus is likely to lead to weaker-than-expected earnings for Hyundai Motor and its sister company Kia Motor in the first quarter as the two have intermittently halted plant operations following deficits in key parts usually supplied by Chinese subcontractors or affiliates.
According to Hyundai Motor, the company ceased work at its Ulsan Plant No. 1, Tuesday, after it ran out of wiring harnesses, which are imported from Korean auto parts suppliers in China. It plans to resume operations possibly by Friday.
Car and component production was halted in China due to an extended Lunar Year holiday and mobility restrictions due to the outbreak. Most automakers aim to resume production in a few days, but disruptions related to supply chains could continue until the end of February or early March, according to market research firms.
Hyundai Motor stopped operations at all of its domestic plants from Feb. 7 to Feb. 12, due to supply problems. The wiring harness shortage came after the Chinese government ordered businesses in Hubei Province to cease operations up to Feb. 9 to prevent the further spread of the virus that originated in its capital Wuhan.
According to industry officials, 38 out of 40 Chinese plants supplying wiring harnesses to car manufacturers here have resumed operations, however, just 60 percent of their employees have returned to work, causing a production slowdown and supply shortages for Hyundai and Kia.
Kia Motors had planned to resume production at its plant in Gwangmyeong, Gyeonggi Province, Monday, but decided to wait until Wednesday, when its No. 3 plant in Gwangju will also resume operations.
After Chinese factories restarted manufacturing, Hyundai Motor received a significant amount of wiring harnesses, but this was insufficient to meet the massive demand required from its domestic plants, a company official said.
As the fallout of the coronavirus is amplified, the two automakers are acknowledging concerns that the setbacks will affect their first quarter earnings.
Yoo Ji-woong, an eBest Investment & Securities analyst, said around Hyundai will see a production drop of 30,000 vehicles due to complications from the coronavirus outbreak, while Kia Motors will lose 7,000.
Citing the numbers, he anticipated Hyundai's and Kia's sales will decline by 900 billion won ($757.2 million) and 210 billion won, respectively. This will cause a 150 billion won decline in Hyundai's operating profit and a 40 billion won cut in Kia's bottom line.
"In terms of Hyundai, the company attempted to minimize the impact on the GV80, the Palisade and the Grandeur, which are core models contributing to the company's profitability," Yoo said. "Through this, the actual decline in the company's operating profit could be relatively small compared to the number of vehicles facing production setbacks."
Citing the two firms heavy reliance on Chinese auto parts, other market analysts expect the duo will see a "noticeable impact" on their first quarter profits. But noted that this would be short-lived.
"As negative events are concentrated in the first quarter, a V-shape rebound is expected for Hyundai and Kia in the second, because a decline in vehicle inventory in the first will result in increased output in the second," Eugene Investment & Securities analyst Lee Jae-il said.
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