[Editorial] Have Pity on Auto Parts Suppliers

The average operating profit of 17 outstanding domestic auto parts suppliers declined 22.4 percent in 2008 from 2004. By contrast, that of Hyundai Motor dropped just 5.3 percent. The average operating profit of 11 car parts makers affiliated with Hyundai Motor grew to 9.3 percent in the first half of last year from 8.4 percent in 2003. Thirty-one parts suppliers not affiliated with the company saw their rate plummet from 4.8 percent to two percent over the same period. This means Hyundai Motor’s partner companies suffered losses while the carmaker and its affiliates fared relatively well. Affiliates and non-affiliates probably also saw gaps in pay and welfare benefits for workers. Workers at non-affiliates likely feel left out.

If the performance of large automakers improves, that of their small and mid-size partner companies should do the same. This is not the case, however. Carmakers have demanded discounts on the unit costs of delivered goods from parts suppliers to weather the global economic crisis. The Korea Institute for Industrial Economics and Trade, which conducted a study on the operating profits of automakers and their parts suppliers, said other partner companies fared much worse. Large companies are obviously uttering hollow words when they express commitment to prospering together with their partner companies.

Carmakers say they must lower the unit costs of delivered goods to survive in the global market. It is tyrannical, however, to lower the costs to the point that partner companies cannot invest in technological development or quality improvement.

Carmakers should not sacrifice parts suppliers like lambs to the slaughter to weather a crisis. Unless the suppliers get a favorable environment to invest in R&D and quality improvement and are seen as partners, the long-term prospects of car exports are dim. Without parts suppliers, Korea in 2008 could not have broken the national record for car export volume with 50 billion dollars.

For their part, car parts manufactures need to stand on their own two feet. Finding new overseas markets is one way. Among the 6,000 parts suppliers in Korea are 900 primary suppliers that employ six percent (170,000 workers) of manufacturing staff. Their combined investment in R&D, however, is just 20 percent of that of the German company Bosch. In addition, their share of exports is 21 percent, lower than those of parts suppliers in Japan (44 percent), the U.S. (46 percent), and Europe (35 percent).

To raise the competitiveness of small and mid-size car parts suppliers, the first order of business is to resolve problems with hard-line unions of automakers. It is impossible for suppliers to boost their competitiveness unless automakers, which keep surrendering to the demands of militant unions, stop forcing them to lower the unit costs of car parts to offset losses stemming from high wages.