By Seo Jeong Yun WIRED Korea

The coronavirus pandemic is ravaging almost all Korean business enterprises, including Hyundai Motor Group. Many analysts say the 2020 market conditions will be the worst since the 2009 financial crisis.

The damage being done to the automotive group, however, will have greater ramifications on the Korean economy than those to many other businesses, given that it is one of the largest employers in the nation.

Hyundai Motor Group, which has Hyundai Motor, Kia Motors and Hyundai Mobis, an auto parts and components maker, under its wing, has more than 280,000 people on its payroll, while many more work for its 3,000 vendors.

Hyundai Motor has cut the pay for its top managers, though it has not started layoffs. Yet, feeling the pinch, a Hyundai union has recently offered to withhold a demand for a pay increase in exchange for job security.
  The Korean government is promising financial aid to large corporations, such as Hyundai, when they find themselves in trouble as a consequence of the pandemic, on condition that they keep employment at their pre-pandemic levels.

The first quarter of this year was not so bad for Hyundai Motor Group, though, with the contagious respiratory disease starting to spread rapidly in mid-February.

The automotive group sold fewer vehicles in the first quarter of this year than the same period of 2019. Sales by Hyundai Motor and Kia Motors dropped 11.6 percent to 903,3371 vehicles and 1.9 percent to 648,685 vehicles, respectively.

Yet Hyundai Motor and Kia Motors reported no operating losses. Instead, they had an operating income of 863.8 billion won on 25,319.4 won in sales and an operating income of 444.5 billion won on 14,566.9 billion won in sales.

A Kia official said his company did relatively well because COVID-19 had taken time since the virus was first reported in China at the outset of this year before it turned pandemic. It was the same with Hyundai.

With demand now plummeting and the supply of parts and components being interrupted, operations at its plants in Korea and around the world are well below their capacities. But analysts say the worst is yet to come, with the full impact of the virus beginning to be felt in the second quarter.

MarketLine, a London-based provider of market intelligence, has recently reported that global automotive sales in March dropped 37.9 percent to 5.54 million from a year ago, mostly as a result of lockdowns in in many countries in the world.

Auto sales more than halved in Europe, said the European Automotive Manufacturers Association, with the cut being the largest in Italy with 85 percent, followed by France with 72 percent, Spain with 69 percent, Britain with 44 and Germany with 38 percent. The association says the virus is doing a great damage to the auto industry, which accounts 7 percent of GDP, raising an uncertainty about the European Union’s economy.

IHS Markit, a London-based provider of market information, predicts global auto production this year will drop 22 percent from last year, with many assembly plants having been shut down since COVID-19 was declared a pandemic by the World Health Organization.

There will be no early rebound in the world, analysts say, calling on Korean automakers to be prepared for a long slump.

Kim Pyung-mo, an analyst at DB Financial Investment, says, "Though the curve of confirmed COVID-19 cases is flattened in Europe, it is not likely that there will be a V-shaped rebound."

Demand for autos this month will be more than halved from a year ago, he says. However, he says, sales will begin to improve next month as the increase in the number of confirmed cases is being mitigated.

Lee Sang-hyun, an analyst at IBK Investment & Securities, says the second quarter will be worst for auto sales. He predicts a year-on-year drop will be 8 percent in China and more than 15 percent in the United States and Europe.

But many analysts believe that the Korean market will recover soon as the number of daily confirmed cases is hovering around 10. Among them are analysts at Samjong KMPG, who say that Korean automakers will do well to consolidate their foothold in the domestic market and make long-term preparations to take the bull by the horns in global markets.

But Hyundai Motor and Kia Motors are not so sanguine. A Hyundai official says it is not certain when markets will recover. He says his company will have to pay a greater attention to a cash flow and inventory than to a prospect of an early recovery and develop a new sales strategy for a long slump.

Kia says it will pay a keen attention to market developments and consider slowing a slide in sales by introducing new models earlier than previously scheduled.

There is no telling when the pandemic is tamed enough for a recovery in the market. But Samjong KPMAG says there will be a new post-coronavirus ecosystem for the auto industry, which it says will put a greater emphasis on health and environment.

If so, the automakers will do well to heed an advice from Samjong KPMG, which says automakers will need to develop post-COVID-19 emergency management plans for sustainable growth and put them in place for future use.

Seo Jeong Yun’s Korean-language articles are found at <현대차, 순이익 42%하락 "코로나 타격은 2분기 본격화"> and <흔들리는 자동차 산업 "포스트 코로나 대비해야">.