February 4, 2020 / 5:29 AM / 23 days ago

Hyundai to halt South Korea output as China virus disrupts parts supply

SEOUL (Reuters) - Hyundai Motor (005380.KS) will suspend production in South Korea because the coronavirus outbreak has disrupted the supply of parts, it said, becoming the first major carmaker to do so outside of China.

The flu-like virus has killed more than 400 people and its economic impact has spread beyond mainland China.

In China, global automakers have already extended factory closures in line with government guidelines. Those manufacturers include Hyundai, Tesla (TSLA.O), Ford (F.N), PSA Peugeot Citroen (PEUP.PA), Nissan (7201.T) and Honda Motor (7267.T).

“Hyundai and Kia may be more affected as they tend to import more parts from China than other global automakers,” said Lee Hang-koo, senior researcher at the Korea Institute for Industrial Economics & Trade.

European carmakers have suffered disruptions only to their Chinese factories so far, with their European and U.S. plants still running thanks to localised supply chains in keeping with a “build where you sell” strategy.

Volkswagen (VOWG_p.DE), Audi (NSUG.DE), BMW (BMWG.DE), Fiat Chrysler (FCHA.MI), General Motors Co (GM.N) and Ford said their factories outside of China remain unaffected by supply bottlenecks.

Hyundai has built huge production capacity in China over the past two decades.

“South Korean parts makers followed and built their own facilities along with Hyundai,” Lee said.

South Korea imported $1.56 billion worth of auto parts from China in 2019, up from $1.47 billion in 2018, trade data shows.

Most of Hyundai’s South Korean factories will be fully idled from Feb. 7, with some production lines expected to restart on Feb. 11 or Feb. 12, a union official said, declining to be identified given the sensitivity of the matter.

Schedules for suspension will vary by production line, a Hyundai spokeswoman said.

‘EMERGENCY’

The move follows a shortage of wiring harnesses, which Hyundai sources mainly in China, industry officials said.

Two of the affected suppliers, Kyungshin and Yura Corporation, said they were trying to boost production at their factories in South Korea and Southeast Asia to compensate for the disrupted supply from China.

Both also plan to resume production at their Chinese factories after Feb. 9.

“We are in an emergency,” a Kyungshin official told Reuters.

Hyundai has seven factories in South Korea, catering for the local market and the United States, Europe, Middle East and other markets.

Its production in South Korea accounts for about 40% of the company’s global output.

FILE PHOTO: A man walks past the logo of Hyundai Motor during the 2019 Seoul Motor Show in Goyang, South Korea, March 28, 2019. REUTERS/Kim Hong-Ji/File Photo

Hyundai’s decision to halt assembly lines at home could delay supplies of its popular sport utility vehicles (SUVs), such as the Palisade and Genesis GV80.

The automaker recently turned in its best quarterly profit in more than two years and said it was on track for higher profit margins, aided by increased sales of SUVs.

The virus outbreak may slow manufacturing activities in the automotive and other sectors, Japanese trading house Mitsui & Co (8031.T) has warned.

Reporting by Joyce Lee and Hyunjoo Jin; additional reporting by Ilona Wissenbach, Joern Poltz and Jan Schwartz in Germany, Giulio Piovaccari in Italy; editing by Miyoung Kim, Jason Neely and David Goodman

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