South Korea announces $3bn support package for embattled car part companies

The South Korean energy ministry has unveiled a raft of measures designed to support the country's strained car parts industry, including a liquidity injection and improved subsidies for electric cars.

The announcement follows the closure of a General Motors’ South Korean subsidiary factory earlier this year and a downturn in profits at Seoul-based car manufacturer Hyundai Motor Co.

The policy package includes financial boost worth over 3.5 trillion won (£2.45bn) and extra incentives to encourage the production of electric cars.

The ministry announced that it will set up a credit guarantee programme worth 1 trillion won that will cover bonds issued by the component manufacturers.

Part of the financial support package is focused on South Korean suppliers to US-based vehicle manufacturer General Motors, which has recently announced cutbacks in the US. Suppliers of the US company will be granted a year long extension in the maturity of loans that are together are worth around 1.2 trillion won.

In order to support the suppliers in a shift towards electric vehicles, the ministry said it would increase the budget for subsidies on both electric and hydrogen vehicles for 2019, increasing the number of cars covered by the policy from 26,500 to 42,000.

A separate announcement from the country's finance ministry yesterday revealed a six-month extension to the 30 per cent reduction in consumption tax for passenger cars, which was previously due to finish at the end of 2018.

“It is a very timely measure in the current situation where the auto industry’s crisis is getting real and the number of suppliers in management crisis due to lack of finances and low utilization rates is rising fast,” said the Korea Automobile Manufacturers Association and the Korea Auto Industries Coop Association in a joint statement to Reuters.