Hyundai abruptly halted production at four out of its five plants in China after a parts manufacturer there stopped supplies because it has not been paid.
The Korean automaker has been unable to pay the parts supplier due to a 40-percent plunge in sales caused by China's unofficial boycott of Korean products.
Industry sources on Tuesday said Hyundai's Chinese subsidiary halted production last week at three Beijing plants capable of producing 1.05 million cars annually and a plant in Changzhou, which can produce 300,000 cars a year. A new plant in Chongqing is still in trial operations.
The parts manufacturer is a French-Chinese joint venture that makes plastic fuel tanks and says Hyundai owes it four months' worth of payments or around 111 million yuan. It is the only supplier to take such a drastic step so far, but others are apparently faced with similar circumstances.
Some 145 Korean parts suppliers operate assembly lines for Hyundai in China, and most of these have not been paid since March.
Koh Moon-soo at the Korea Auto Industries Coop. Association said, "Korean parts supplies in China haven't been paid for the last four to six months and are faced with a liquidity crisis. They're hanging on through loans from headquarters in Korea or from Chinese banks."
Beijing Hyundai Motor is a 50:50 joint venture with BAIC Motor that was established in 2002, with BAIC handling the finances. One local industry source said, "There are suggestions within Beijing Hyundai to borrow money to pay the parts suppliers, but no decisions have been made."
Hyundai's sales in China began to slump in March after Korea decided to deploy a THAAD anti-missile battery from the U.S. China believes that the powerful radar of the THAAD system could be used to spy on its military maneuvers.
Hyundai and affiliate Kia have seen Chinese sales plunge 43 percent in the first seven months of this year, while factory output has nosedived 67.5 percent. A Hyundai staffer said, "We are holding talks with the part supplier to resolve the problem and we plan to turn to another supplier if negotiations fall through." But the staffer added that output at the plants is not expected to recover any time soon.
Hyundai is also faced with problems at home. The automaker's notoriously militant labor union has downed tools again demanding higher pay, a more or less annual fan dance. The company has around 5,000 subcontractors.