Korea’s Auto Sector Skids toward Unsustainability

South Korea’s annual vehicle production could slip below 4 million units this year, a minimum volume deemed necessary to sustain the industry’s supply base, warns the Korea Automobile Manufacturers Assn.

KAMA says the decline is threatening an industry that contributes roughly 20% of Korea’s gross domestic product. Further erosion could jeopardize tens of thousands of jobs, The Nikkei reports.

Korea’s output peaked at nearly 4.6 million vehicles in 2015, making it the world’s fifth-largest carmaker after China, the U.S., Japan and Germany. But production has been declining since then.

Last year Korea built 4.02 million vehicles, 500,000 fewer than in 2018. Now the country ranks seventh in production, behind India and Mexico.

Korea’s largest producer, Hyundai Motor Co. and its Kia Motors affiliate, also failed to pace a worldwide shift in consumer preference from sedans to SUV/crossover vehicles that has left it trailing its Japanese rivals. A global slowdown in new-car sales has exacerbated the Korean industry’s woes.

Rising labor costs also have made it more difficult for Korean carmakers to maintain traditional spending levels for new products, The Nikkei says.