New-car deliveries have been thrown into emergency mode after a fire at the Safety Industry plant that supplies engine valves to Hyundai Motor and Kia. DONGHEE AUTO CO., which contract-manufactures Kia's small cars Morning and Ray, has already decided to halt production, and in the field, sales staff are also advising that deliveries of Hyundai Motor's compact sedan Avante could become difficult. The production disruption is hitting small cars with lower demand first.
According to the auto industry on the 25th, DONGHEE AUTO CO. will partially suspend production of Morning and Ray starting on the 27th, and will fully halt production from Apr. 1 to 11. DONGHEE AUTO CO. is a joint venture between Kia and parts maker Donghee Holdings. It began with the Morning in 2004 and currently contract-manufactures Kia's small cars up to the Ray.
The suspension stems from a fire on the 20th at Safety Industry's Daejeon plant, which supplies engine valves to Hyundai Motor and Kia. Engine valves are essential auto parts that control fuel injection and exhaust gas discharge inside the cylinder.
The Avante, known as the "people's sedan," is also widely expected to face significant delays in new-car deliveries due to the fire. A Hyundai Motor salesperson said, "Until last month, delivery lead time for the Avante gasoline and hybrid was one month, but starting this month it has stretched to three months," adding, "Headquarters has not yet issued an official memo saying parts cannot be procured due to the fire, but if customers do not sign this month, deliveries could be pushed back significantly due to the fire's impact." Inside and outside Hyundai Motor, there is speculation that production of the Avante at the Ulsan plant could be suspended as early as this week.
By contrast, popular models such as the midsize sedan Sonata, the compact sport utility vehicle (SUV) Tucson, and the midsize SUV Santa Fe are relatively free from the fire's impact. A Hyundai Motor salesperson said, "We currently have Sonata inventory, so discounts are possible," while another salesperson said, "Popular SUVs like the Tucson and Santa Fe are available for immediate delivery, so there is no need to worry about the fire's impact."
An auto industry official said, "Demand for small and compact cars isn't what it used to be, so we don't build them in advance," adding, "For midsize and larger sedans or SUVs, popularity is strong, so allocation is often secured even before orders." DONGHEE AUTO CO.'s production halt is also believed to be due to the remaining domestic engine valve inventory being prioritized for midsize and larger vehicles.
However, if this situation persists, production of midsize and larger vehicles could also be disrupted. Hyundai Motor and Kia are reportedly reviewing plans to bring surplus engine valves from overseas plants to Korea to delay production halts as long as possible.
That said, in this case engine valves would have to be shipped by sea, which would take considerable time. An industry official said, "Assembly lines won't stop today or tomorrow, but if this continues, production disruptions will intensify starting in early April."
A Hyundai Motor and Kia official said, "We currently hold a certain level of inventory at home and abroad and are coordinating with partners to prevent production disruptions," adding, "We are reviewing and pursuing multifaceted response measures, including using existing inventory and alternative sourcing within the supply chain."