The domestic industry produced 3.46 million vehicles in 2021, falling below 3.5 million for the first time in 17 years.
But hopes for reversing this decline are blooming, starting in Busan.
The announcement on May 10 that China’s Geely Automobile was buying a 34% stake in Renault Korea Motors brought a sigh of relief from a staffer with the city of Busan, where Renault Korea is based.
“I welcome that the production volume will increase for now,” the city worker said. “It will lead to job retention.”
As part of the stake, the two sides will manufacture gasoline and hybrid vehicles at the Busan plant. Renault Korea will release a new model in 2024.
The Geely deal brings synergies for the South Korean market, a Renault Korea executive said. French parent Renault Group sees the Busan plant as an export hub.
The assembly plant opened in 1998 under what was then known as Samsung Motors, realising the long-held ambition of Lee Kun-hee – then the chairman of Samsung Group – to run an auto manufacturer.
But the operation had the misfortune of starting shipments in the middle of the Asian currency crisis. Weak demand quickly drove Samsung Motors into financial trouble.
Renault bought the company in 2000, renaming it Renault Samsung Motors. The French automaker had just completed a similar bailout of Nissan Motor. The Busan plant made 275,000 vehicles in 2010, supported by the contract manufacturing of Renault models.
But contract production volume diminished over the years due to a high cost structure. The plant’s output last year totalled roughly 130,000 units, less than half of the peak. The infusion of Geely capital gives the factory a new contract manufacturing client.
Hyundai Motor and group company Kia hold a combined domestic share topping 70%. Renault Korea, renamed from Renault Samsung this year, is a midtier automaker along with GM Korea and SsangYong Motor – two companies that also fell under foreign control following the currency crisis. GM Korea produces 220,000 vehicles a year.
By comparison, SsangYong remains adrift. After the currency crisis, SsangYong was purchased by Shanghai-based SAIC Motor. Indian automaker Mahindra & Mahindra took over after the company entered a court receivership in 2009.
Yet the rehabilitation has stalled, putting SsangYong on a hunt for a new sponsor. Last year SsangYong agreed on a sale to Edison Motors, a South Korean electric vehicle startup, but the deal collapsed after Edison missed a payment.
Overseas expansion by the Hyundai group has contributed to South Korea’s falling auto output as well. Hyundai has said it will expand plants at home, partly as a concession to unions. However, those plans involve investments mainly for EVs, which provide little benefit for existing suppliers.
“Even as they face a sudden shift toward EVs, domestic suppliers do not have the leeway to engage in sufficient research and development,” said Kim Pil-soo, a professor at Daelim University’s future automotive engineering division. “As the way things stand, the parts supply industry will perish.”
Foreign-owned automakers also have shied away from manufacturing in South Korea, as unions won sharply higher wages or engaged in strikes.
Between 2011 and 2021, South Korean auto production declined by 1.2 million vehicles. Volume plunged by 50,000 units from 2020 alone due to the semiconductor shortage and other supply chain issues.
Automobiles once ranked as a key South Korean export alongside semiconductors, but chips are now nearly triple the scale of vehicles. Because South Korea’s industry is less diversified than Japan’s, a weak auto sector hurts the economy as a whole.