As follow-up negotiations on tariffs between the Korean and U.S. governments stall, automakers and auto parts companies are fretting. With a tentative agreement at the end of Jul. between the two governments to lower tariffs on automobiles and parts to 15% from 25%, companies expected the decline in operating profit to ease starting in the third quarter, but a 25% tariff still applies because differences remain over a $350 billion (about 488 trillion won) investment fund.
The Korean and U.S. governments are continuing negotiations on ways to flesh out Korea's investment package for the United States. Minister Kim Jeong-gwan of the Ministry of Trade, Industry and Energy visited the United States on the 11th–14th and met with U.S. Secretary of Commerce Howard Lutnick for talks, but there was no progress. On the same day, Deputy Minister Yeo Han-koo also departed for the United States immediately to continue consultations. Attention is on whether Yeo's trip to the United States will speed up follow-up talks that have been stuck in a deadlock.
With finished carmakers such as Hyundai Motor and Kia seeing a sharp drop in operating profit due to the impact of U.S. tariffs, the tire industry is also on edge. The tire sector enjoyed a boom since last year as sales of high-margin products such as sport utility vehicles (SUVs) increased, but this year operating profit is expected to fall from a year earlier.
According to financial data firm FnGuide, Hankook Tire & Technology is expected to post third-quarter sales of 5.2613 trillion won and operating profit of 405.1 billion won this year. Sales are 116% higher than a year earlier, but operating profit is down 14%.
NEXEN TIRE is projected to record third-quarter sales of 773.7 billion won and operating profit of 39 billion won this year. Sales are about 10% higher than a year earlier, but operating profit is down 26%. Kumho Tire is also expected to see annual sales rise from last year, but operating profit fall.
A source in the tire industry said, "We are offsetting the tariff impact by raising prices 5%–10% and increasing sales in Europe rather than North America, but there are limits," adding, "Unless tariffs come down, it will be hard to avoid a deterioration in third-quarter results." Hankook Tire and Kumho Tire at least have production facilities in the United States to offset the tariff impact, but NEXEN TIRE has no U.S. plant.
Among auto parts makers, there is also anxiety that finished carmakers could switch their supply chains to U.S. local companies. That is because if high tariffs persist, automakers may also cut parts prices. A representative of the domestic auto parts industry said, "If a part can be substituted with a local supplier, finished carmakers will have no choice but to shift (their suppliers)."