KOREAN AUTOMOTIVE PARTS INDUSTRYMarch 28, 2002Prepared by James R. McElroyAutomotive Parts and Suppliers Division,Office of Automotive Affairs
TABLE OF CONTENTSPageExecutive Summary 1History of Industry 3Structure of Korean Parts Industry 5Restructuring of Korean Parts Industry . Investment in Korean Parts . Investment in Korea 13Korean Investment in United States 14Trade in Automotive Parts 14Aftermarket 20Observations23Appendix A: Summary of Restructuring of Korean Parts Industry 24Appendix B: Key Contacts for the Korean Parts Industry 25Appendix C: Korea Auto Industries Cooperation Association 29
KOREAN AUTOMOTIVE PARTS INDUSTRYExecutive SummaryThe development of a country’s automotive parts industry normally follows thedevelopment of the vehicle industry, and Korea is no exception. The beginning of theautomotive industry in Korea consisted of assembly of knocked-down units importedfrom Japan. Later on, the primary Korean vehicle manufacturers began importing partsmainly from Japan for assembly. Next, a parts industry developed consisting mainly ofsubsidiaries of the motor vehicle manufacturers. Finally, an independent parts industrywas established. As in the other major auto producing countries, Korean vehicleassemblers are increasingly relying on independent first tier suppliers for most of theirparts and have divested many of their parts producing subsidiaries. Korea followed the Japanese Government model for the vehicle industry, first trying tocontrol the development of the automotive industry either directly or indirectly, but thenallowing the industry to function almost entirely on its own with little governmentinterference (at least on the manufacturing side). Initially, there was only one companyallowed to manufacture autos and one to manufacture trucks and buses. During theearly 1990's, there were five producers of vehicles. There are currently four Koreanproducers of vehicles; however, only one (Hyundai) is a worldwide competitor, while theother three are relatively weak. Few vehicles have been imported into Korea due todirect or indirect government Korean parts industry at one time consisted of two very large manufacturers, bothsubsidiaries of the assemblers, or companies controlled by the vehicle assemblers. Now major parts of these subsidiaries have been sold, merged with foreign partners, orgone out of business. The most competitive independent suppliers have survived, andthe weaker companies have become second or third tier suppliers or ceased size of the parts industry in most countries is directly related to vehicle production. Korea first produced 120,000 vehicles domestically in 1980, and by 2001 its productionsurpassed 3,000,000 vehicles. During the 1998-2001 period, Korea exported over halfof its domestic vehicle production, while importing very few autos and number of Korean parts companies declined from 1,339 in 1997 to 1,109 in 1999,and is expected to drop below 1,000 by 2002. Only 32 parts companies employed morethan 1,000 employees in 1999, while 703 parts companies had fewer than 100 workers. Korea Delphi (majority-owned by . Delphi Automotive Systems) is the largestindependent parts company in Korea. Fifteen other parts companies are wholly ownedby . companies. Both European and Japanese firms have also invested heavily inproducing parts in Korean plants. However, there is virtually no Korean auto parts1
investment in the United States or ’s exports of parts increased from $495 million in 1990 to $ billion in 2000. Almost half of Korea’s exports were to the United States and Canada in 2000. Theprincipal products exported were air conditioner compressors and parts, bearings,wheels, window regulators, steering parts, and clutches and parts of clutches. Korea imported an estimated total of $ billion automotive parts in 2001. Japan wasthe largest supplier, accounting for 49 percent ($840 million), the United States wassecond with 21 percent ($369 million), Germany third with 11 percent ($189 million),and all other countries accounting for the remaining 19 percent ($317 million).. investment in the parts industry continues to grow in Korea, and the KoreanGovernment is not interfering with foreign investment. If GM purchases some ofDaewoo’s assembly operations in Korea, both . exports and . imports of partswill grow at a more rapid pace than the last four years. While the quality of the Koreanmany parts is currently below world-class levels, Korean parts are expected to soon beon an equal level with parts produced anywhere in the world. 2
History of IndustryThe development of the Korean automotive parts industry closely followed thedevelopment of the Korean vehicle industry. There was no domestic Korean vehicleindustry until the early 1960's when motor vehicles were basically assembled fromimported parts, or what was essentially a “knock-down” assembly process. The Koreanauto parts industry did not begin to develop until the early 1970's, and slowly evolvedinto the current parts industry as we know it today. Rapid growth occurred during themid 1980's and 1990's, with much technical influence from Japanese motor vehicle andparts to World War II, the Japanese Government played the significant role ofgovernment in developing the major Korean industries. Following the War, the SouthKorean Government continued its role in economic development. The KoreanGovernment created “chaebols”, or industry groupings. These chaebols weresomewhat similar to Japanese “keiretsus”, with three major differences. First, mostchaebols were founded and controlled by a Korean family, while Japanese keiretsuswere controlled by professional corporate managers. Next, individual chaebols wereprevented from buying controlling shares in banks, and in 1990 government regulationsmade it difficult for a chaebol to develop exclusive banking relationships. Japanesekeiretsus worked with only one bank and was virtually controlled by that bank. Finally,chaebols often formed wholly owned subsidiaries to produce components (such asautomotive parts, semiconductors, etc.), while keiretsus would either buy a controllinginterest in a supplier, or buy a small portion of the supplier. However, a particular familymay own a small portion of the chaebol, but its “member companies”, in total, can ownfrom 30-60 percent which gives the family the power to control the chaebol. Since the1997 financial downturn in the Korean economy, some of the major chaebols haveeither collapsed or now are very weak the Korean War, the Korean Government identified which industries it wouldsupport and who should operate/own them. According to analysts at the EconomicStrategy Institute located in Washington, ., the Korean Government developed thefirst five-year plan in the early 1960's (1962-67) to develop its automotive industry. Trade associations for vehicles and parts were created by the Government at that timein order to “coordinate” the economic Korean Government banned imports of complete vehicles at that time and gaveduty-free status to parts imported for use in the assembly of new vehicles. The vehicleswere complete KD’s (knock-down units), with most imported from Japan. TheGovernment encouraged Korean parts companies to be established, and local contentlevels were required. In 1981, Korea limited the number of vehicle producers to four(Hyundai, Daewoo, Kia, and Asia). At the same time, the Government protected theparts industry by giving its industry association (Korea Auto Industries CooperativeAssociation or KAICA), the power to veto the imports of parts that were available3
domestically. Thus, foreign parts manufacturers could either transfer their technology toKorean parts companies or lose the business in the 1980's, Korea only allowed Hyundai to produce autos, but in 1989 Daewooand Kia were allowed to reenter the auto market. In 1989, Sangyong also beganproducing autos. With each new entry, the parts companies supplying each vehicleassembly manufacturer grew. Since parts companies normally only supplied oneassembler, the number of Korean auto parts producers increased. However, manywere unable to reach production levels that afforded them the resources for adequate research and development expenditures. Thus, the quality of the parts did not meet thestandards of Japan, EU, and United States, and this resulted in vehicles that did notmatch the quality of vehicles sold by these exports to the United States, and the rest of the world, declined in the early1990's, total vehicle production in Korea continued to increase due to strong domesticdemand. Production of vehicles increased from 966,358 units in 1987 to 1,644,132units in 1996. As production increased, so did the demand for original equipment (OE)parts, and the demand for replacement parts increased as the fleet of vehicles in Koreagrew at a rapid rapid growth continued until the financial crisis of 1997 when the Korean economyalmost collapsed and was forced to ask for assistance from the International MonetaryFund. The vehicle and parts industry contracted, and the vehicle industry was forced torestructure. By the end of 2001, it had not yet regained the position it enjoyed beforethe financial crisis, and today there is basically one healthy motor vehicle manufacturingcompany in Korea, Hyundai. Since many of the parts companies were either fully,jointly, or financially tied into the major motor vehicle companies, they, too, have eitherfailed, merged, or been bought out by foreign auto parts companies. In late October, 2001, General Motors tentatively agreed to pay $400 million for two ofDaewoo’s Korean assembly plants and Daewoo subsidiaries located in Egypt andVietnam. (As of March, 2002, negotiations between GM and Daewoo had not beenfinalized.) Many of Daewoo’s Korean suppliers are on the verge of bankruptcy, butmay be able to recover with the help of GM. Many of Daewoo’s largest suppliers (seelist below) were owed money in October, 2001, and may still not be able to survive:1. Daewoo Heavy Industries and Machinery, Ltd.: machine tools and factoryautomation equipment ($ million).2. Korea Delphi Automotive Systems Corp.: brakes, electrical systems, catalyticconverters ($170 million).3. Daewoo Telecom Ltd.: automatic transmissions, shock absorbers, airbags,engine components ($ million).4. Hankuk Sekurit Ltd.: glass ($ million).5. Daewoo Electronics Co.: audio and video systems ($ million).6. Koryo Co. Ltd.: car seats ($12 million).4
7. Shinsung Packard Co.: wiring harnesses ($ million).8. Dongwon Metal Industry Co.: mufflers, door frames, side-impact beams ($6million). By October, 2001, 20 Daewoo suppliers had filed for bankruptcy, and most analystssaid Daewoo’s supplier network would continue to face a painful round of consolidationin the year to of Korean Auto Parts IndustrySince a country’s original equipment (OE) and aftermarket parts industry is directlyrelated to the number of vehicles operated and produced in that country, the followingtwo tables present these data for 1996-2000. In 1990, there were fewer than millionvehicles registered in Korea, and almost half of these were commercial vehicles. Ascan be seen from Table 1, that number has increased by almost 250 percent, thusincreasing dramatically the demand for replacement 1: Registrations of Motor Vehicles in Korea, 1996-2000(In Units)YearAutosBusesTrucksSpecialTotalPurposeVehicles19966,893,633 ,962,564 33,884 9,553,09219977,586,474 719,1272,072,256 35,57010,413,42719987,580,926 749,3202,104,683 34,67010,469,59919997,837,251 993,6412,298,189 35,23811,164,31920008,084,0051,427,6632,511,055 37,13812,059,861Source: KAMA, June, 2001Korea produced, or assembled, less than 20,000 autos, trucks, and buses in 1972. Production did not reach 100,000 units until 1978, and remained relatively constantduring 1978-1984. As can be seen in Table 2, production rose rapidly after 1985,reaching over one million in 1988 and two million in 1993. (Data for 2001 show Koreaproduced million cars, trucks, and buses, but individual data by vehicle type is notyet available.)5
TABLE 2: Production of vehicles in Korea, 1980-2000YearAutomobilesTrucksBusesTotal1980 57,225 53,857 12,307 123,1351981 68,760 52,116 13,358 94,460 47,199 20,931 162,5901983 121,987 73,438 25,594 221,0191984 157,503 80,304 26,554 265,3611985 264,458 84,614 29,090 378,1621986 457,383107,777 36,386 601,5461987 793,125128,183 58,431 979,7391988 872,074142,677 68,9041,083,6551989 871,898177,391 80,1811,129,4701990 986,751226,101108,7781,321,63019911,158,245233,860105,7131,497,81819921,306,752267,354155,5901,729,69619931,592,669277,200180,1892,050,05819941,805,895307,725198,0432,311,66319952,003,146312,705210,5492,526,40019962,264,709311,489236,5162,812,71419972,308,476266,928242,8712,818,27519981,625,125169,682159,6871,954,49419992,361,735253,097228,2822,843,11420002,602,008256,370246,2883,114,998Source: Ward’s World Vehicle Data 2000Table 3 shows that the rapid increases in production and sales of the 1980's and early1990's have not only slowed, but production declined drastically from 1997 to 1998, anddomestic sales of vehicles had not reached 1997 levels by the end of 2000. The onlybright spot for the Korean motor vehicle industry was exports, which have increased6
every year since 1996. Also shown in the table is an indication of the potential demandfor replacement parts for imported vehicles; virtually nonexistent. Korea has the lowestimport penetration level of imported vehicles for any country in the industrialized 3: Production, Domestic Sales, Exports, and Imports of Korean Motor Vehicles, 1996-2000YearProductionDomesticExportsImportsImportSalesConsumptionRatio19962,812,7141,644,1321,210,157 25,148 %19972,818,2751,512,9351,316,891 20,131 %19981,954,275 779,9051,362,164 2,985 %19992,843,1141,273,0291,509,660 5,675 %20003,114,9981,430,4601,676,442 11,168 %Source: KAMA, June, 2001According to data supplied by the major Korean automotive parts association, KoreaAuto Industries Cooperation Association (KAICA), there were only 165 parts companiesin Korea in 1975. By 1994 there were 1,440, but this number had decreased to 1,109by the end of 1999. The following table provides data for 1997-1999 (the latest yearavailable).TABLE 4: Number of Companies and Work Force(In units)199719981999Number of Companies 1,339 1,166 1,109Number of Hourly Workers 331,814 271,792 268,225Total Production (Million US $) 18,627 9,428 16,203Source: KAICA 2000 YearbookThe Korean automotive parts industry consists mainly of small and medium-sizedcompanies. In 1999, 97 percent of the 1,109 Korean parts companies had fewer than1000 employees. Only 32 companies had more than 1,000 employees. Table 5provides a summary of number of employees by size of
TABLE 5: Number of Companies by SizeSize Small Medium Large Total Number of Less than 101-1,000 Over 1,000employees100Number of 703 374 32 1,109 companies Percent of total % % % 100%Source: KAICA 2000 YearbookRestructuring of the Korean parts industryThe Korean parts industry has changed dramatically since 1997. The following tablelists the top ten parts manufacturers and their estimated sales in Korea for the yearending in 1997. The number one company in 1997, Mando had sales of almost $ dollars in 1997, while in 1999, its sales barely reached $200 million. However,.-owned Delphi did not even appear on the top ten list in 1997, while it moved tonumber one by 2000, mainly by purchasing large parts of Daewoo AutomotiveComponents. (Table 7)TABLE 6: Top Ten Parts Suppliers, 1997(In millions of . Dollars)CompanyProducts1997 SalesMando MachineryComprehensive 927Daewoo Automotive ComponentsComprehensive755Daewoo Precision IndustriesSteering parts486Halla Climate ControlHeating, A/C systems424Kia Heavy IndustriesTransmissions294Sejong IndustriesExhaust systems227Hyundai ElectronicsAudio components206Daewon KangupSprings, seats206LG ChemicalBumpers204KeficoElectronic Control Units1948
CompanyProducts1997 SalesTotal for top ten - 3,923However by 1999, the top ten parts producers had changed dramatically. According to KAICA,the sales of the ten largest parts companies listed in the following table represented of the Korean parts industry. Thus Delphi, a .-owned automotive parts manufactureraccounted for almost four percent of the total value of auto parts manufactured in Korea in1999. TABLE 7: Top Ten KOREAN Auto Parts Producers, 1999CompanyMajor productsNumber of 1999 Sales Employees (. dollars)Korea DelphiGeneral parts 2,481 TelecomSteering and 1,809 partsHalla Climate ControlAir conditioning 1,584 CorporationTransmission and 1,580 CorporationGeneral parts 3,300 ElectronicsAudio accessories 13,938 Jin IndustriesStampings 730 , systems 1,039 706 IndustriesExhaust systems 674 27,841 2,: KAICA 2000 Yearbook In Korea, auto parts suppliers traditionally were highly dependent on foreign companies(especially Japanese) for marketing, technology, and financing. This is quicklychanging, however, as larger foreign-owned parts manufacturers enter into jointventures or purchase Korean parts makers. Even before this happened, some Koreanparts makers had already formed joint research projects with foreign companies, and9
were relying less on the Korean vehicle number of suppliers providing parts to each Korean vehicle assemblers differssubstantially based on company size, production capacity, and number of modelsproduced. Most parts companies sell the majority of their products to only one vehicleassembler. As can be seen in the following table, over two thirds sell to only onecompany, while only percent supply parts to four 8: Number of Suppliers for Each Vehicle ManufacturerSuppliesOneTwoThreeFourTotalhow manycompaniesSuppliers 570 158 80 57 865Percent of % % % % 100% totalSource: KAICA 2000 YearbookAccording to a study conducted by the Korea Institute for Industrial Economics andTrade (KIET) in 1997, Korean parts suppliers delivered an average of 70 percent of allparts and components for Korean-made vehicles. About 10 percent were produced “inhouse” by the vehicle manufacturers and the remaining 10 percent were imported. However, many of the independent suppliers belonged to the chaebols at the time, thusKIET estimated that the actual “in house” suppliers accounted for an additional 10-20percent of the Hyundai formerly followed a strategy of vertical integration, as it increased in size,it built a network of subcontractors, following the Japanese “keiretsu” system. Thisdevelopment was encouraged by the Korean Government and was more cost efficientthan producing parts in house. In addition, as Hyundai rapidly expanded (and to someextent Daewoo), it was almost forced to do this due to lack of financial Ministry of Commerce, Industry, and Energy (MOCIE) has been the Korean agencyresponsible for influencing the vehicle manufacturers to subcontract out partsproduction in not only the automotive sector, but other central sectors of the economyas well. Not only were vehicle manufacturers encouraged to do this, but pressure wasplaced on them by MOCIE. Just as in Japan, many times a parts supplier would sell toonly one vehicle manufacturer, and the vehicle manufacturer would reward the supplierwith long term contract, marketing, and other benefits. However, this system did haveits drawbacks; principally it limited competition. Many of the suppliers lacked themotivation to develop better components and commit sufficient resources for researchand development. Thus the quality of their products suffered as quality of parts10
improved in the United States, Europe, Japan and Korean vehicles, as a result had theimage of being of lessor quality. For many of the firms, since they were unable toexpand sales to more than one vehicle assembler, they remained rather small and wereunable to spend more money on research and development even if they had wanted to. (This is evident in Table 4 which shows that almost two thirds of the parts companies inKorea employ fewer than 100 people.)While one of the largest parts suppliers used to be owned principally by Hyundai Motor,this company was broken up and some of the pieces were purchased by foreigninterests after the 1997 financial crisis. Today, the largest auto parts company in Koreais 50 percent owned by Delphi, a subsidiary of the largest auto parts company in theworld and 50 percent by Daewoo. (Up until 1999, Delphi was a wholly owned subsidiaryof General Motors, but it was spun off from GM and is now a fully independent partscompany with its headquarters located in Troy, Michigan.) Mando Machinery, a major supplier formerly owned by Hyundai and in 1997 the largestparts company in Korea, narrowly escaped bankruptcy in 1998 when its parent, HallaGroup, collapsed.. The collapse of the Halla Group, of which Mando Machinery was anaffiliate, is documented in the following timetable:: Halla Group, the 12 largest Korean conglomerate, or “chaebol”,declared bankruptcy after borrowing huge amounts of money to financeunsuccessful attempts to . 1998: Halla Climate Control Company agreed to sell 40 percent of its whollyowned plant in Canada to Ford Motor for $ million. In addition, Halla ClimateControl signed a five-year contract with Ford to sell auto parts for automobile airconditioning units manufactured in the Canadian . 1998: Halla Group announced plans to restructure, which included theselling of 5 of its 18 member companies (such as Halla Venture Capital and HallaConcrete) to foreign companies. (Mando Machinery sold its 50 percent stake inKAMCO (Korean Automotive Motor Company) to Bosch, its former joint-venturepartner. KAMCO is now wholly owned by Bosch. It was a manufacturer of smallelectric motors for power windows and air conditioners and the joint venture wasestablished in 1993.)Mar. 1998: Halla Group appointed Rothchild, an . investment bank, to help itrestructure its debt. Halla sold off some of its Mando auto parts business to GM,Lucas Varity, ITT, and Valeo. (It sold its 50 percent stake of Halla ClimateControl to Ford, its joint-venture partner since 1986.)Apr. 1998: As a result of it talks with Rothchild, Halla decided to reduce it numberof subsidiaries through mergers and sell-offs from 18 to 3. The three newsubsidiaries were named Mando Machinery, Halla Cement, and Halla11
. 1998: Mando Machinery received a $20 million bridge loan from Rothchild. This was the first loan of a total of over $1 . 1998: Mando enters into negotiations with Delphi (at the time GM Delphi) to1purchase part of the company.(Source: Asian Automotive Business Review, October 1998). Investment in KoreaAs noted above, the largest automotive parts producer in Korea is Korea Delphi, apartially owned subsidiary of .-owned Delphi Automotive Systems. While Delphihas heavily invested in Korea, Delphi executive Asia-Pacific President Choon Chon wasquoted in Automotive News stating that “If Daewoo ever closes, I don’t think DelphiKorea will make it.” The following table lists the top twenty wholly owned . partscompanies operating in Korea as of June, 9: Wholly Owned . Parts Companies, by Date of Initial InvestmentCompany . InvestorProductsDate ofInitialInvestment3M Korea3M -73Molex KoreaMolex InternationalConnectors5-84AMP Korea, IncAMP IncorporatedWiring harnesses10-85TRW Controls andTRW WorldwideCombination switches8-87FastenersDistribution CentersKorea Borg-WarnerBorg-WarnerClutches8-87Automotive, IncAutomotiveParker Climate ControlParker HannifinAir conditioner hoses 8-88Korea Applied PowerApplied PowerPumps10-88Walbro KoreaWalbro CorporationFuel tanks10-88Honeywell KoreaAllied-SignalTurbochargers 5-891 A summary of the restructuring of the Korean auto parts industry is at Appendix A.)12
Company . InvestorProductsDate ofInitialInvestmentMeritor Light VehicleMeritor Light VehicleSunroofs11-91SystemsSystemsKorea Borg-WarnerBorg-Warner TurboParts for turbochargers 6-94Cooling SystemsSystemsEaton AutomotiveEaton InternationalSolenoid parts10-97ControlsGibbs Korea Die CastingGibbs Die CastingSteering gears 7-99Delphi AutomotiveDelphi AutomotiveInterior and chassis 7-99Interior and ChassisSystemspartsWarbco KoreaAmerican StandardAir conditioner parts 6-00InternationalCompiled from various is a list of some of the other major .-owned parts companies which hold atleast a 50 percent interest in a parts company operating in Korea:Daesung (Delphi)Korea Delphi Automotive Systems (Delphi)TRW Steering (TRW)Delco Korea (General Motors)Halla Climate Control (Visteon)Sung San Co. (General Motors)Shinsung Packard (General Motors)Dongil Bando (Bando)Hyosung (ASC)Korea Federal-Mogul (Federal-Mogul)Sung Woo (Delphi)Gates Korea (Gates Rubber)Yoojin Industries (Visteon)Duck Yang (Visteon)Duck Yang Industries (Visteon)There are also additional larger .-owned parts suppliers manufacturing in Korea, butdo not have a controlling interest, such as ITT, Bundy, Standard Products, and UnitedTechnologies. Total investment, as of June, 2000 by . parts companies in Koreawas estimated at almost $600 million . dollars. ArvinMeritor announced inSeptember, 2001 that it had “formed a strategic alliance” with Sejong Industrial13
Company to supply complete exhaust systems to Hyundai, but the size of theinvestment by ArvinMeritor was not . Foreign Investment in . parts companies are not the only foreign investors in Korean parts companies. Some examples of . foreign investors include:Omron (Japan): Purchased 100% of its joint-venture operation (OMRONAutomotive Electronics) from its partner Tong Hae in Electric (Japan): Purchased 10 percent of Sam Lip Company, whichholds about 80 percent of the headlight business in Korea, in April Valve (Japan): Raised its share in joint venture with Shin Wha Precision to60%. Shin Wha is a joint venture between Nittan Valve and Woo SungEnterprise which manufacturers valve (Japan): Joint venture between NSK and Han Wha Machinery. Changedname from Han Wha NSK to Korean NSK (at the request of the Koreancompany) in January (Japan): Joint venture between NGK and Woo Sin Industrial, of which NSKowned 32 percent in late (Germany): Purchased 70 percent of the bearing division of HanwhaMachinery. The new company is named FAG-Hanwha Bearing Mogul (France): A subsidiary of Federal Mogul, ., formed a jointventure with Kukje Special Metal to produce engine bearings, bushings, etc. Federal Mogul France now owns 87 percent of the (Britain): Purchased the remaining 50 percent share in Hanwha-GKNDriveshafts in April investment in the United StatesNo hard data is available regarding foreign investment by Korean parts , The Automotive Reports issue of May 21, 2001 reported the first Korean partscompany to set up operatiton in the . recently opened a plant in Clinton, TN. Thecompany is Samlip America, a subsidiary of Samlip Industrial Company, Ltd, based inKorea, and it will supply shifter and parking brake assemblies to General Motors. (Samlip is partially owned by Japan’s Stanley Electric, which, in turn, in partially ownedby Honda Motor Company.) The chairman of the company, Choong Kon Lee, told thepress he knows of other Korean parts companies considering manufacturing facilities in14
the United States, but no final decisions have been made early September, 2001 Automotive News reported that Hyundai is again consideringopening a new motor vehicle assembly plant in the United States. (Recent reportsindicate the plant will most likely be located in Kentucky or Alabama.) A Koreannewspaper reported that Hyundai decided to build a plant in the United States to “avoidtrade disputes between Korea and the United States”. If Hyundai does locate a plant inthe ., it could very well bring some of its Korean suppliers with it, just as theJapanese auto manufacturers did in the 1980's. (It’s principal in-house supplier,Hyundai Mobis, will almost certainly build parts manufacturing facilities in the UnitedStates.) However, unlike the Japanese, many of Hyundai’s Korean suppliers arepartially or wholly owned by foreign parts manufacturers which may already have and not need to relocate from Korea. Korean trade in automotive partsKorea exported parts valued at $ billion in 2000. According to KAICA, these exportswent to 181 countries with 161 companies exporting components. North Americaaccounted for 38 percent of the exports, Asia 21 percent, Europe 22 percent, and therest of the world 19 percent. The principle components exported in 1999 were A/Ccompressors, bearings, wheels, and window
TABLE 10: Exports of Parts, 1990-2000YearValue ($1,000)Number of importingNumber of companiescountries exporting 1990 495,235 154 133 1991 519,236 155 128 1992 565,474 160 120 1993 604,789 162 124 1994 724,510 167 122 1995 887,517 174 131 1996 1,006,793 174 130 1997 1,124,589 188 124 1998 1,185,429 190 119 1999 1,292,831 181 131 2000 1,491,567 181 161 Source: Korea Automobile Industry Suppliers Directory, 2001-2002TABLE 11: Exports by Geographic Area, 1995-1999(Thousands of . dollars)Area1996 (Share)1997 (Share)1998 (Share)1999 (Share)North America 299,144 (%) 337,420 (%) 358,102 (%) 493,225 (%)Asia 290,005 (%) 282,390 (%) 306,381 (%) 274,694 (%)Europe 202,049 (%) 239,597 (%) 280,359 (%) 293,668 (%)South America 80,008 ( %) 108,125 (%) 81,931 (%) 74,812 (%)Middle East 48,080 (%) 65,131 (%) 65,918 (%) 61,485 (%)Oceania 51,742 (%) 57,737 (%) 53,597 (%) 53,306 (%)Africa 35,545 (%) 34,189 (%) 39,137 (%) 41,638 (%)Total1,006,5731,124,5891,185,4251,292,828Source: Statistical Data of Korean Automobile Industry 200016
TABLE 12: Parts Exports by Product, 1998-2000 (Thousand US dollars)Product199819992000A/C compressors120,801134,721171,367Ball and roller bearings 40,528 41,209 48,911A/C parts 37,660 52,880 45 269Aluminum wheels 12,839 30,472 46,194Window regulators 17,383 43,668 38,405Steering parts N/A 15,469 29,908Clutch covers 16,856 21,306 23,940Clutch discs 15,804 19,380 22,219Hydraulic cylinders 4,416 17,902 20,350Diesel engines N/A 5,304 19,183Oil pumps N/A 10,366 19,041Wheel hub bearings N/A 3,518 17,089Trailer chassis 861 15,578 14,196Alternators 27,504 23,088 13,890Seat parts 17,583 17,049 10,098 Source: Korea Automotive Industry Suppliers Directory, 2001 (KAICA)Japan has long been the principal source of imported auto parts for Korea. The latestinformation from the . Embassy in Korea shows Japan enjoying a 49 percent sharein 2000, up from percent in 1997. Japan first supplied completely finished enginesand transmissions to Korean auto assemblers as the industry grew, and now suppliesmany internal engine parts and transmissions. Korean auto companies have dependedon Japanese technology in the past , and continues to rely heavily on the Japaneseauto makers. The United States was second in 1997 with a 27 percent share, andremained second in 2000 with a 21 percent share. Germany’s share dropped from in 1997 to 11 percent in limited data regarding automotive parts imports is available. Aggregate data for17
HS 8708 (parts and accessories of motor vehicles of headings 8701 to 8705, basicallyauto, trucks, and buses) is available, but this does not include some major vehicle partscategories such as gasoline/diesel engines, electronics, automotive glass, tires, audioequipment, and some other automotive parts. However, based on a data base createdby the Office of Automotive Affairs, US Department of Commerce using HTS numbersand data published by the Bureau of Census, it can be estimated that HS 8708accounts for about 70 percent of the total value of automotive parts imports. Imports from the United States for 2001 totaled $369 million, Japan $840 million,Germany $189 million, and all other countries $317 million, for an estimated total of $. If GM decides to purchase all or part of Daewoo’s Korean operations, and .-made vehicles are imported into Japan, the . share of the imported auto partsmarket should increase and Japan and Germany’s share will with the United StatesFrom 1989-1993, Korea recorded a trade surplus in auto parts with the United States. For the years 1994 to 1996 United States had a surplus with Korea. However, in 1997the surplus changed to a very small deficit of $3 million, but has increased every yearsince then. The parts trade surplus enjoyed by Korea increased to $753 million for2001. The increasing surplus has been caused by a growing number of Koreanvehicles exported to the United States which need replacement parts as they age, anincrease in replacement parts imported from Korea for other vehicles in the . fleet,and some OE sourcing from Korea for Big Three and Japanese transplant
TABLE 13: Imports/Exports and Deficit/Surplus in Parts with .(In millions of . dollars)YearImportsExportsSurplus/Deficit198915968152219902046844811991356576220199237664727019934536582051994754662 -921995935628 -3071996 942606 -3361997661664 3199836476239819995979193222000454 1,0826282001 369 1,122 753 Imports are . exports to Korea, and exports are Korean imports from the . Source: . Census 2000, Korea’s principal automotive parts exports to the United States were radialtires, followed by audio equipment, and miscellaneous parts. A listing of the 15 principalexports to the United States is shown in the following
TABLE 14: Principal Korean Auto Parts Exports to the ., 2000(Thousands of . dollars)Type of Part2001Radial tires for automobiles 191,824Radio combinations, including CD players 93,041Parts of vehicle bodies 59,908Radial tires for buses and heavy trucks 58,689Radial tires for light trucks 55,813Compressors for air conditioning 53,602Parts for gasoline engines 50,936Miscellaneous parts 47,943Starters for gasoline engines 28,391Parts for drive trains 23,826Aluminum wheels 22,867Water pumps for engines 20,139Brakes and parts of brakes 20,133Alternators and generators 18,769Parts for steering systems 15,581Source: . Department of Commerce20
TABLE 15: Principal Korean Imports from the United States, 2000(Thousands of . dollars)Type of Part2000Miscellaneous parts for motor vehicles 163,779Airbags for motor vehicles 70,892Transmissions and parts of transmissions for autos 26,877Cellular telephones for motor vehicle use 18,716Instrument panel clocks 16,842Parts and accessories for motor vehicle bodies 15,663Radial tires for autos 10,428Brakes and parts of brakes 10,370Transmissions for motor vehicles other than autos 9,354Parts of trailers 7,115Clutches and parts of clutches 6,744Parts for diesel engines 5,839Parts for gasoline engines 5,633Drive axles and differentials 4,924Electrical parts for gasoline engines 3,908Source: . Department of CommerceAftermarketSome sections of the following were taken from the USFCS report, Industry SectorAnalysis, released in 1999 covering the Korean auto parts aftermarket. However, inmany cases, especially when using data, it is impossible to differentiate betweenoriginal equipment and aftermarket data (production, imports, and exports) since nodistinction is made between the two when collecting the data. In 1998, at the height of Korea's recent severe economic downturn, the size of theautomotive aftermarket for service equipment, parts and accessories was estimated at$ billion, down by 34 percent from $ billion in 1997. The . share of automotiveparts and accessory imports (used in both OEM and aftermarket sectors) declined by 5221
percent from $354 million in 1997 to $171 million in 1998, while total imports decreasedby 39 percent. It is now estimated that demand for auto parts, both OE andreplacement, will decline in 2001 by an estimated 5-7 percent. Over the last decade, foreign suppliers have lost market share against domesticmanufacturers of OEM and aftermarket parts as a result of the localization strategypursued by the Government of the Republic of Korea (ROKG) and Korean industrysince the mid-1980s. Currently foreign aftermarket products account for only 6 to 7percent of the total domestic market. In 1998, Korea imported approximately $64million worth of aftermarket products, including $57 million in repair parts andaccessories and $7 million in service equipment. The . held a 12 percent share ofthe import market, following Japan's 44 percent share. In the service equipment market,. suppliers have a 33 percent share of the import market. The . has a relativelylarge share of the high-tech automotive aftermarket for products such as air bags, bodyparts, steering wheels, analyzers and testing equipment. European suppliers, mainlyGerman and Italian, have larger shares in several product categories, including carwashing machines, analyzers, testers, wheels and wiper blades. The Japanesecontinue to dominate the power train (engines, transmissions, etc.) and electrical partsmarkets; which are typically high-value , . and European parts makers have expanded their manufacturing base inKorea by acquiring Korean firms or expanding their shares in joint venture companies.(See . Investment section.) The Import Source Diversification Program restrictionswere completely removed on June 30, 1999. This expansion is in large part due to theelimination of the Import Source Diversification Program which was originally passed in1978 to keep certain Japanese products out of Korea. Most vehicles and certain motorvehicle parts were included in the list of products banned from importation. The KoreanGovernment had been slowly removing products from the list, and on June 30, 1999announced the final 16 products would be eliminated, which effectively eliminated the1978 law.) Now, all Japanese motor vehicles and parts can be freely imported intoKorea . According to Korean industry experts, Japan will be in a position to furtherexpand its share of the market for automotive parts categorized as "other automotiveparts and accessories (HS 8708 99 9000)" and "automotive engine parts (HS 8709 911000)". However, international industry experts do not anticipate a sudden increase inexports to Korea of cars or parts by the Japanese since their technology is already wellestablished with Korean Korea suffered through its financial and economic crisis, per capita incomedecreased to $6,823 in 1998 from $10,307 in 1997, on a gross national income (GNI)basis, according to the Bank of Korea. The Korean economy (GNP) dropped in 1998, while increasing by percent in 1999. The year 2000 saw a increase, while 2001 is predicted to increase by only 1998, the automotive aftermarket was estimated to have shrunk by 34 percent, basedon statistics from several relevant industry and government sources. According to theKorea Auto Industry22
Coop. Association (KAICA), sales totaled $ billion: $ million in parts andaccessories and $25 million in service equipment. Statistics from several relevantindustry and government sources indicate that the import market also decreased, by 51percent from $117 million in 1997 to $64 million in equipment imports fell from $24 million in 1997 to a mere $7 million in 1998,based on government trade statistics and the opinions of Korean industry experts. Priorto the outbreak of theeconomic crisis in 1997, Korean automotive service businesses increased purchases ofservice equipment. In particular, a number of gas stations installed car washingmachines and offered freecar wash services to attract more consumers. At the time, Korean industry expertsestimated that imported car washing machines represented around 30 percent of totalmarket demand. Europeanproducers have been strong in the import market for car washing machines comparedto . and Japanese suppliers. . suppliers have a relatively large share of themarket for analyzers andtesting great majority of imported automotive parts are supplied to Korean automakers,Daewoo and Hyundai, while the aftermarket accounts for only 5 to 7 percent of the totalimportsof automotive parts, according to the KAICA. Recently, sales of aftermarket parts andaccessories to do-it-yourself consumers have increased significantly. In the OEMmarket, . suppliershave held a strong position in sales of air bags, cell phones for auto use, and brake relatively small size of the aftermarket for imported parts and accessories is mainlyattributable to the small number of imported vehicles in Korea and the limited use .-made OE parts for vehicles which are assembled in Korea and remain there. (Many of the imported parts used in assembly are in vehicles which are subsequentlyexported.). As mentioned previously, there were between 45,000 and 50,000 importedautomobiles registered in Korea as of December 1998, which accounted for less percent of the total number of registered
TABLE 16: AUTOMOTIVE AFTERMARKET: EQUIPMENT, PARTS AND ACCESSORIES (In millions of US $)Year1997199819992000Domestic1,7051,1691,3091,440ProductionImports 117 64 70 76(. Imports) 27 12 13 14Exports 147 120 130 142Total Market1,675 1,109 1,249 1,374Sources: 1) Imports and exports: "Statistical Yearbook of Foreign Trade,” Korea CustomsService; 2) Local production "Automotive Industry Yearbook", Korea Auto IndustriesCooperatives Association (KAICA);24
Observations1. Currently, the . parts industry has a relatively high level of investment in Korea. It appears as though the Government of Korea is not restricting foreign parts companiesfrom investing in Korea. In fact the opposite seems to be happening–the Government isencouraging foreign . The . Government has received no complaints from either advisory committee(ISAC 16 or the Automotive Parts Advisory Committee) stating that they are havingproblems investing in . If General Motors is successful in purchasing part or all of Daewoo, . partssuppliers will be in a better situation to supply OE and replacement parts to the Koreanauto parts . The Korean economy has yet to fully recover from the 1997 financial crisis, and itappears as though there was little, if any, growth in the economy in 2001. 5. . imports of Korean vehicles are increasing dramatically. The parts deficit withKorea is also increasing at a rapid rate. This reflects a growing Korean parts industry,even though the total number of parts producers is declining. What appears to behappening is the smaller, less efficient companies are either being purchased by largercompanies or simply going out of business. 6. Even the Korean parts association, KAICA, admits that Korean parts producers donot currently meet the quality of ., EU, and Japanese parts producers. In addition,the Koreans continue to rely upon foreign manufacturers provide newer . Korean companies will continue to increase exports of parts, both OE andreplacement, to the United States. The Big Three, and probably the Japanese andGerman transplants, are already buying some Korean-made OE parts for use in theUnited States. This trend will continue, putting more competitive pressure on ., EU,and Japanese parts producers. Thus, while Korean producers are not competitive inthe more technologically advanced areas (. air bags, engine modules, etc.), they areincreasing parts sales at the lower/mid- level
APPENDIX A: Summary of Restructuring of the Korean Parts IndustrySince the collapse of the Korean economy in mid-1997, the Korean automotive partsindustry has been restructuring. Many assemblers are going global for many of theirparts instead of purchasing components from Korean parts suppliers. Koreanassemblers are introducing some elements of competitive bidding. Suppliers have todemonstrate their price and quality levels at each model (or platform) change. Theassemblers are encouraging suppliers to become more self-sufficient by broadeningtheir customer foreign-owned companies are buying or forming joint ventures with Koreancompanies in the areas of electrical systems, safety systems, and bearings which theassemblers are telling their traditional suppliers that they must become morecompetitive. Also, the assemblers are beginning to use more modularization (completedashboards, assembled drive systems, etc.) systems. It is estimated that some of thetop assemblers in other world markets are approaching a 30-40 percent rate formodularization, and the Korean assemblers want to “benchmark” manufacturers are also delegating more responsibilities to Korean partssuppliers. Areas of delegation include product planning, increased research anddevelopment, quality control, supply chain management, after service warranty, andenvironmental performance. The vehicle manufacturers are now focusing more on theircore competency–assembling 1998, the Korean supplier base was flat, consisting primarily of only first tiersuppliers, and not many second and third tier suppliers. Now the vehicle manufacturersare expecting fewer first tier suppliers and more second and third to supply the first tiersuppliers. This is mandatory when the assemblers are requiring more modules. Theefficient suppliers become first tier suppliers which supply more R & D and better qualitycontrol, while the less efficient/competitive become second and third tier suppliers. Many of the less efficient have been purchased by first tier suppliers or simply havegone out of business. While the initiatives to restructure the supply base have come mostly from assemblers,a few suppliers have been proactive and highly competitive in the Korean parts supplyindustry. Unlike in the early years of the Korean auto industry, the Korean Governmenthas allowed the market forces to shape the new automotive number and sizes of the Korean suppliers is smaller than world standards, and alsocompared to its auto industry (assemblers). Korea now has only two vehicle principleassemblers (Hyundai and Daewoo), both in the top 20 assemblers in the world. However, it does not have a parts manufacturer in the world’s top 50. Their were 1,079tier one suppliers in 1997, but it is estimated there are now between 500 to 600. Thisnumber will probably drop to below 300 within the next few
Source: Information from presentation to the first Asia Pacific Economic Cooperation(APEC) Auto Dialogue held in Bali, Indonesia, July 26,1999 by Wujin Chu, SeoulNational
APPENDIX B: Key Contacts for the Korean Parts Industry1) Government AgenciesMinistry of Construction and TransportationSurface Transportation BureauAutomobile Management SectionKwacheon Government Complex, 1 Chungang-dong,Kwacheon-shi, Kyonggi-do 427-760Tel (82-2) 504-9155, Fax (82-2) 504-9156Ministry of EnvironmentAir Quality Management BureauKwacheon Government Complex, 1 Chungang-dong,Kwacheon-shi, Kyonggi-do 427-760Tel (82-2) 504-9247, Fax (82-2) 504-92082) Trade AssociationsKorea Auto Industries Cooperative Association (KAICA)1638-3, Seocho-dong, Seocho-ku, Seoul 137-070Tel (82-2) 587-0014, Fax (82-2) 583-7340Contact: Mr. Kim, Ju-gon, Managing DirectorKorea Automobile Manufacturers Association (KAMA)60, Yoido-dong, Youngdeungpo-ku, Seoul 150-763Tel (82-2) 782-1360, Fax (82-2) 782-0464Contact: Mr. Chung, Duk-young, Vice PresidentAssociation of Foreign Trading Agents of Korea (AFTAK)218, Hankangro 2-ka, Yongsan-ku, Seoul 140-012Tel (82-2) 792-1581, Fax (82-2) 785-0384Contact: Mr. Pyo, Sang-ki, Chairman3) Trade PublicationsKAICA JournalPublished by the Korea Auto Industries Cooperative Association1638-3, Seocho-dong, Seocho-ku, Seoul 137-070Tel (82-2) 587-0014, Fax (82-2) 583-7340Contact: Mr. Kim, Ju-gon, Managing Director28
KAMA JournalPublished by the Korea Automobile Manufacturers AssociationKorea Automobile Manufacturers Association (KAMA)60, Yoido-dong, Youngdeungpo-ku, Seoul 150-763Tel (82-2) 782-1360, Fax (82-2) 782-0464Contact: Mr. Chung, Duk-young, Vice PresidentKorea Automobile PressPublished by the Korea Economic Daily441, Joongrim-dong, Chung-ku, Seoul 100-791Tel (82-2) 363-4114, Fax (82-2) 363-7585Contact: Mr. Park, Yong-jung, PublisherAuto GuidePublished by Auto Magazine Co., -5, Seocho-dong, Seocho-ku, SeoulTel (82-2) 585-6400, Fax (82-2) 585-7188Contact: Mr. Song, M. W., General ManagerMotor MagazineDaesung Bldg. Rm. 5021, Naesoo-dong, Chongro-ku, Seoul 110-070Tel (82-2) 725-5051, Fax (82-2) 725-5055Korea Transportation News59-6, Banpo-dong, Seocho-ku, Seoul 137-040Tel (82-2) 595-2982, Fax (82-2) 583-7340Korea Transport Press9-1, Hoehyun-dong 3-ka, Chung-ku, Seoul 100-053Tel (82-2) 776-3183, Fax (82-2) 790-86504) Primary Domestic Parts ManufacturersMando Machinery Corporation730, Dang-dong, Kunpo-shi, Kyonggi-doTel (82-343) 450-6161, Fax (82-2) 459-6307Contact: Mr. Oh, Sang-soo, PresidentDaewoo Automotive Components -5, Yoido-dong, Youngdeungpo-ku, SeoulTel (82-2) 3772-6300, Fax (82-2) 761-9494Contact: Mr. Bae, Kil-hoon, PresidentDaewoo Precision Industries
5, Songjung-ri, Chulma-myon, Kijang-kun, PusanTel (82-51) 509-2114, Fax (82-2) 508-3339Contact: Mr. Kim, Ho-tae, PresidentKia Precision Works Co., -8, Oe-dong, Changwon-shi, KyongnamTel (82-551) 268-3200, Fax (82-551) 284-8526Contact: Mr. Park, Moon-kyu, PresidentHyundai Precision & Industry Co., -2, Kye-dong, Chongro-ku, SeoulTel (82-2) 746-1114, Fax (82-2) 741-4244Contact: Mr. Park, Jung-in, PresidentHanhwa Automotive Components -2, Woonyong-ri, Dunpo-myun, Asan-shi, ChungnamTel (82-418) 531-5300, Fax (82-418) 531-5305Contact: Mr. Kim, Il-soo, PresidentDooray Metal Industries Ltd. (Wheels)24, Yoido-dong, Youngdeungpo-ku, SeoulTel (82-2) 767-4700, Fax (82-2) 785-5485Contact: Mr. Kim, Eun-kil, PresidentKorea Engineering Co., Ltd. (Service Equipment)908-8, Hwakok 1-dong, Kangseo-ku, Seoul 157-011Tel (82-2) 601-4722, Fax (82-2) 601-4720Contact: Mr. Kim, Chong-ho, President5) Importer-DistributorsDaewoo Corporation541, Namdaemunro 5-ka, Chung-ku, Seoul 100-714Tel (82-2) 759-2114, Fax (82-2) 753-9489Contact: Mr. Jang, Byung-jooHyundai Corporation140-2, Kye-dong, Chongro-ku, Seoul 110-793Tel (82-2) 745-1114, Fax (82-2) 741-2341President: Mr. Chung, Jae-kwan, PresidentBosch Korea Bldg., 31-7, Changchoong-dong 1-ka, Seoul 100-391Tel (82-2) 2270-9114, Fax (82-2) 2270-9010Contact: Mr. Dietmar K. Zieger, President30
Michelin Korea Co., -5, Yangjae-dong, Seocho-ku, Seoul 137-130Tel (82-2) 589-5800, Fax (82-2) 589-5881Contact: Mr. Francois Rouvier, PresidentKumho Tire Co., -1, Hoehyun-dong 2-ka, Chung-ku, SeoulTel (82-2) 758-1402, Fax (82-2) 758-1515Contact: Mr. Kim, Soon-ki, Manager, Sales Support TeamUnion Enterprises Co., . 1405, Dongwha Bldg., 25-5, Yoido-dong, Youngdeungpo-ku, SeoulTel (82-2) 784-3511, Fax (82-2) 784-6806Contact: Mr. Paek, Wha-kiSource of key contacts: ISA 99070131
APPENDIX C: KOREA AUTO INDUSTRIES COOPERATION ASSOCIATION•Founded in 1962 to promote development of Korean vehicle and parts industry•Currently has 350 members including motor vehicle and motorcyclemanufacturers and their component suppliers.•Objective is to pursue growth of its members by providing them with data andinformation regarding production, sales, technology, etc.•Promotes international trade and cooperation by exchanging information andtechnology with foreign-related associations and manufacturers.•Address:1638-3, Seocho-dong, Seocho-gu, Seoul, 137-070, KoreaTelephone: 02-587-0014 or 02-587-3416Fax: 02-583-7340E-mail: kaica@: person: Mr. San Kim, Manager32
