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(EDITORIAL from Korea Times on Feb. 8)

All News 09:29 February 08, 2020

Supply crunch
Emergency measures needed for virus-hit industries

The crisis surrounding the new coronavirus outbreak is taking its toll on Korean manufacturers ― particularly automakers ― that remain dependent on the supply of parts from companies in China.

Hyundai Motor, the country's biggest carmaker, said Friday it plans to halt all of its domestic car assembly lines due to a lack of parts. Its affiliate Kia Motors will follow suit, suspending operations at all of its assembly plants here next week.

The two firms and other carmakers here have already reduced production of cars as China extended the Lunar New Year holiday to fight against the spread of the virus. Thus, subcontractors in China have been forced to halt production. We are not sure how long the supply crunch will continue.

Hyundai suspended its entire domestic production lines only once before, back in 1997 at the height of the Asian financial crisis.

Given South Korean carmakers import roughly 30 percent of their auto parts from firms in China, a prolonged supply crunch is expected to deal a heavy blow to them. According to Hyundai Motor, if all its plants in Korea are closed for five days, it causes a production shortage of 30,000 vehicles worth up to 700 billion won ($589 million).

Of course, it is not only carmakers that are heavily affected by the spread of the coronavirus. What is occurring to Hyundai Motor is a symbolic case showing how the virus is having a direct impact on domestic production. The ongoing crisis has revealed the dark side of the country's closer economic ties with China. Needless to say, if the supply problem were to continue it will affect its corporate earnings, prices of its cars ― and ultimately jobs there.

Automakers need to minimize supply chain disruption and normalize the production of cars as quickly as possible. The government said it is seeking to simplify import procedures for auto parts from other countries and provide emergency loans to help local parts makers expand their production lines.

On Friday, global credit rating firm Moody's Investors Service issued a report warning Korea Inc. of a rough road ahead. It said the spread of the virus in China was credit negative for Korean firms in many sectors because less consumption in China will limit South Korea's shipments as the virus poses the risk of disruptions to production and supply chains. The report predicted that Korea's retail and automobile industries will be most affected by the outbreak.

With no efforts spared at containing the virus here, the government should closely monitor these and other industries to reduce widespread economic damage. It is time to consider extraordinary measures and pre-emptive steps, such as tax cuts and emergency funding to firms in need, to persevere during these challenging economic times.
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