This article is by Sarah Chea and read by an artificial voice.
Park Woo-cheol, 42, who runs a plating company in the industrial city of Daegu for Hyundai Motor, now finds himself pounding the pavement - not because he must, but because a U.S. tariff has already slashed his company's sales by more than half.
"For small business owners like me, this is nothing short of a death knell," Park, who employs 13 workers at its plating plant largely for automobile wheels, lamented, his voice trembling with frustration.
"When polices turn volatile, automakers like Hyundai and Kia simply freeze their order and take a wait-and-see approach."
Park is never alone, as the 15 percent tariffs on automobiles and auto parts makers tend to take a harder toll on tens of thousands of other small- and medium-sized enterprises. Unlike big manufacturers that can offset some of the impact through U.S.-based production sites, smaller companies with operations rooted entirely in Korea have little room to maneuver.
Korea is home to roughly 20,000 auto parts manufacturers with more than 210,000 employees. Of them, some 88 percent are small businesses with annual revenues of less than 10 billion won ($7 million), or those called subcontractors, or second-, third- and even fourth-tier vendors.
Tariffs, the true cost: Job loss
For Shin Woo-taek, who operates a factory that manufactures frames for battery packs, Hyundai's pursuit of parts localization is a nightmare unfolding in real time.
"If Hyundai opts to cease using Korean-made parts and sources everything locally from its U.S. plants, we'll be left on the streets," Shin said, adding that he still has "seven workers to pay salaries" in a plant in Cheongju, North Chungcheong.
"Can you imagine how many people in the provinces depend on Hyundai just to make a living? For the heads of those households, this is a fate worse than death."
Hyundai said its second-quarter operating profit fell by 828.2 billion won due to tariffs, and 20 percent of the fall was driven by parts sourcing. It set up a task force to review optimal sourcing strategies for more than 200 components as part of a gradual shift toward procuring parts in the United States to avoid tariffs.
Some major companies are even turning to Chinese suppliers, aiming to save costs.
"Even the plating work for Hanwha's electrical components - coatings that block electric flow - was recently moved to China," Park said.
Burden shift to parts suppliers
Even relatively large top-tier suppliers aren't immune - they, too, are feeling the squeeze.
"For second- and third-tier vendors, failure to receive payment puts them at risk of bankruptcy. So, we are burdened with paying the promised amounts, even if it means suffering from bank interest and other financial repercussions," said an executive from a local first-tier auto parts manufacturer who supplies Hyundai Motor.
"The automakers, on the other hand, are adopting a wait-and-see approach, which means the full responsibility falls squarely on us."
Hyundai Motor has about 350 top-tier vendors, including its own affiliate Hyundai Mobis, which amounts to 5,000 firms when including the second to fourth tiers of its supply chain.
GM Korea, the Korean operation of General Motors, has some 276 top-tier suppliers. Its total subcontractors number 3,000.
When tariffs rise, companies must either endure lower profit margins or raise prices - options that are often untenable for businesses with limited capital and virtually no bargaining power. The cost, in many cases, is passed down to them in full.
The operating profit margin of Korean auto parts makers was a mere 3.62 percent as of last year, according to a study by the Korea Automotive Technology Institute on 213 auto parts suppliers with annual revenue exceeding 10 billion won.
That's significantly lower than the average operating profit margin of 7.5 percent among 103 parts suppliers ranked in the top 2,000 global companies by the European Union.
"Parts suppliers ...
