Hyundai Mobis, the nation’s largest auto parts maker under the Hyundai-Kia Automotive Group, was found to be increasingly pressuring its suppliers to cut prices amid the strengthening South Korean currency.
“Even the top-tier auto parts suppliers (for Hyundai Mobis) are feeling the pinch of price cuts this year,’’ a source close to that matter told The Korea Herald. “The suppliers believe things will only get worse.”
Further, Hyundai Mobis has to deal with the fact that it is heavily reliant on its parent company for sales, which is becoming a bigger problem as it seeks to maintain its profit margin.
Currently, the figures for Hyundai Mobis is higher than that of its global rivals such as Germany’s Bosch, but they reflect a downward trend. In 2010, the firm’s operating profit ratio stood at 13.2 percent, but it slipped to 10.2 percent in 2011, falling further to 9.4 percent in 2012 and to 8.6 percent in 2013.
Industry watchers said it would be a challenge for the company to reverse the trend this year, mainly due to unfavorable exchange rates.
“Besides the unfavorable external business conditions, Hyundai Mobis is also battling a structural issue involving its dependence on Hyundai Motor and Kia Motors,” said Kim Pil-soo, a professor of automotive engineering at Daelim University.
Hyundai Mobis depends on part orders from its two sister companies ― Hyundai Motor and Kia Motors ― for half of its sales.
The result of such problems is that the company has a long way to go before it can call itself a value-added parts supplier.
“At most, Hyundai Mobis is in the parts retail business,” Kim said.
Because it lacks core business strategies, it has no choice but to squeeze its suppliers whenever Hyundai Motor and Kia Motors demand cost cuts.
Hyundai Mobis’ heavy dependence on its parent company and its struggles to keep up its profit margin is in sharp contrast with the fact that, globally, it has become something of a rising star.
According to a list of the top 100 global OEM parts suppliers, released by Automotive News, the nation’s top car parts supplier was ranked sixth with $24.66 billion in sales last year, which was up two notches from the previous year.
But it will take a while for the company to become one of the top five, due to its reliance on Hyundai and Kia, Kim added.
In a nutshell, Hyundai Mobis needs to become a research and development-based company that can eventually become a value-added parts maker.
“Hyundai Mobis stands at a critical juncture and the time is ripe for it to consider a shift in its business strategy as it will face a more competitive business environment,” Kim said.
Toward this end, the company has been investing in manufacturing key auto parts, including airbags and headlights based on the its own technology, but progress has been slower than expected. To address the problem, cross-licensing deals for securing patents may be advisable.
Other future risks Hyundai Mobis faces includes the replacement car parts certification system that is to be launched next month, albeit limited to foreign cars. The main purpose of the system is to give drivers the option of using cheaper, alternative parts for their cars.
If the system is applied to local cars ― Hyundai Motor is currently dragging its feet ― Hyundai Mobis, which has enjoyed a dominant status in the aftermarket parts sector, is expected to be hit hard.
As the automotive group’s second-largest affiliate, Hyundai Mobis has a significant role to play. It also holds the key to the power transition at Hyundai Motor, as the parts supplier is expected to merge with another affiliate, Hyundai Glovis, to help in the shift of power from chairman Chung Mong-koo to his son Eui-sun. The merged entity will likely serve as the group’s holding company.
