An automotive parts manufacturer based in the Gumi National Industrial Complex in North Gyeongsang Province, South Korea, filed for court rehabilitation yesterday, on 31 March, after failing to honour promissory notes.
In spite of its £17.3 million annual turnover, and holding innovation certification, the company cited a “sharp decline in order volumes” as the primary cause of its distress.
This case exemplifies broader challenges facing Korean manufacturers, with two automotive parts suppliers in the country declaring bankruptcy in March alone. The sector’s troubles come before US President Donald Trump’s tariffs have fully taken effect – a 25% levy on imported vehicles starts 2 April, with component tariffs following in May.
Manufacturing production had already contracted by 4.2% year-on-year in January, with the Business Survey Index (BSI), which measures the economic sentiment of the top 600 South Korean companies, remaining below the 100-point threshold for thirteen consecutive months.
The Business Survey Index (BSI), which measures the economic sentiment of the top 600 South Korean companies, is at 92. A BSI below 100 means companies have a negative outlook on the economy. The BSI currently stands at 92, indicating that many businesses are pessimistic about future growth and economic conditions.
“Exports are expected to fall from April,” said Chun Kyu-yeon, an economist at Hana Securities, as a result of reciprocal tariffs on automobiles. While South Korea’s total March exports increased by 3.1% in March, this fell short of the expected 3.5% growth.
South Korea’s steel exports dropped 10.6% in March, in correlation with the US imposition of a 25% tariff on steel last month.
This extends beyond automotive parts: after Trump unveiled a 25% tariff on automobiles last Wednesday on 26 March, shares in Korean imported vehicles were rattled. Hyundai Motor lost 11.2% in the three sessions following the annonucement, and Kia Corp fell more than 3% after Trump’s announcement. South Korea’s Industry Minister Ahn Duk-geun warned of the “considerable difficulties” this uncertainty would bring.
The stakes are significant: South Korean automotive parts exports to the US reached £6.3 billion last year, representing 36.5% of the nation’s total component exports. South Korea’s exports of automobiles to the United States stood at $34.7 billion in the same period, accounting for 49% of its total auto exports. South Korean brands (Hyundai and Kia) also make up two of the eight top car brands in terms of auto sales in the US.
The Korean government plans emergency measures for the automotive sector in April, with further initiatives for petrochemicals and component manufacturing to follow.
Industry representatives are calling for subsidies and tax relief comparable to those offered by competitors such as the US and Japan to weather what they describe as an “unprecedented crisis” for key industries.
While a significant share of media attention is diverted towards the rhetoric and ideological implications of tariffs, such cases reiterate that tariffs will harm the businesses – often small and medium-sized enterprises (SMEs) – which make up the foundation of international supply chains. As such, these bankruptcies portend a far weakened structure upon this foundation.
