Korea's other automotive superstars: Suppliers
Companies gain higher profile with Hyundai-Kia's success
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TOKYO -- Their names were all but unknown outside South Korea a mere half decade ago: Hyundai Mobis, LG Chem, Mando, Halla Climate Control, Hankook Tire.
But today these and other South Korean auto suppliers have stormed the global stage on the coattails of the Hyundai-Kia juggernaut -- and suddenly, they are in top demand by carmakers worldwide.
Gone is their reputation as purveyors of cheap, low-quality goods.
Now they are winning customers from Tokyo to Wolfsburg and Detroit with increasingly high-tech, yet cost-competitive, products. Look no further than the LG Chem-supplied lithium ion batteries for the Chevrolet Volt plug-in hybrid for a sense of the inroads they have made.
Numbers tell the tale: South Korea's auto parts exports have nearly quadrupled since 2004, when South Korean suppliers shipped only $5.9 billion in parts overseas.
The exports are expected to increase another 10 percent this year to $25.5 billion, says Kim Young-hoon, export manager at the Korean Auto Industries Co-op Association, the suppliers' trade group.
"Korean auto parts have been achieving great results due to their competitiveness regarding high technology, quality, low price and marketing," Kim says.
Capitalizing on lower labor costs, South Korean suppliers can undercut rivals in the United States, Europe and Japan. They also get a tail wind from exchange rates that encourage exports, while Japanese rivals struggle with the yen's surge against the dollar and euro.
South Korean parts cost about 25 percent less than comparable Japanese parts, according the Korea Automotive Research Institute, a unit of Hyundai Motor Group. And while the same study found South Korean companies still lag Japanese rivals in production technique, quality and design, those gaps are rapidly narrowing.
Good timing
South Korean suppliers' big break came last year, when Japanese automakers' domestic supply chains were slammed by the March earthquake in Japan. With their finances already hammered by the yen's soaring exchange rate against the dollar and euro, Japanese automakers looked next door for cheaper alternative sourcing.
Then in July, a South Korea-European Union free-trade agreement took effect, further fueling their overseas expansion. And this year, the march of success should continue with the enactment of a similar free-trade agreement between South Korea and the United States.
The latter deal eliminates U.S. tariffs on South Korea-made auto parts.
"We expect OEM exports will increase much more because the Korea-EU FTA took effect last July and the Korea-US FTA will be come into effect soon," Kim says.
In preparation for the U.S. trade agreement, Mando Corp., a maker of brake, steering and suspension systems, signed a $520 million deal to supply General Motors last fall.
The deal includes shipments of rack assist electric power steering, a technology that saves fuel by activating electric power steering only when required. South Korea's Maeil business daily said Mando is one of the few suppliers worldwide to offer the technology.
In September, Mando -- South Korea's fourth-biggest supplier, according to the Automotive News list of the top 100 global suppliers -- told reporters it would build a second U.S. plant, in Georgia, to supply antilock brake systems and electronic control systems to Hyundai, Kia and Chrysler. The Georgia plant will open in 2013. Meanwhile, last June Mando opened an r&d center in suburban Detroit.
The company expects the trade agreements to further spur business with the United States and Europe, Mando spokesman Kim Sung-yun wrote in an e-mail.
South Korea's giant
Few suppliers compare in reach -- or ambition -- to Hyundai Mobis Co., the top supplier to the Hyundai Motor Group. Mobis, of Seoul, ranks No. 10 on the Automotive News list of the top 100 global suppliers with estimated worldwide parts sales to automakers of $14.4 billion in fiscal 2010.
Yet in 2000, Mobis didn't even make the list.
By last June, though, South Korea's second-biggest supplier was scoring its first big contracts in Japan -- deals to supply Mitsubishi Motors and Subaru with headlights for a combined value of $233 million. The shipments to Mitsubishi include cutting-edge, energy-efficient LED front lighting.
That contract charts a new course for South Korean suppliers, Mobis claims.
"So far, only parts that have been first supplied to Korean carmakers and thoroughly tested in the market for quality have been able to win orders from companies overseas," the company said in a statement at the time. "The Mobis LED head lamps have never been installed on any Korean cars, but they have successfully won contracts for exports to leading car manufacturers."
In November, Mobis set the goal of becoming one of the world's five biggest suppliers.
While it didn't offer a timeline, Mobis said it would double r&d spending through 2015 to get there. Eight product areas are key to growth: brake equipment, steering equipment, airbags, radar, green car technology, infotainment systems, LED headlights and auto-body technology.
In the meantime, Mobis keeps adding overseas customers. After last June's deal in Japan, Mitsubishi came back with an order for parking assist technology. Other business won in the past year: headlights and taillights for Chrysler, automatic occupant sensors and integrated center stacks for GM and high-mounted stop lights for Volkswagen AG.
In 2005, companies outside the Hyundai-Kia group accounted for just 0.6 percent of Mobis' sales. Today, that share is 10 percent. And by 2020, Mobis wants it to be 20 percent.
| Korean powers | ||
| South Korean companies on Automotive News' list of top 100 global suppliers | ||
| 2010 Rank | Global Parts sales | 2009 rank |
| 9. LG Chem | $15.5 billion (estimate) | 6 |
| 10. Hyundai Mobis | $14.43 billion (fiscal year estimate) | 12 |
| 45. Hyundai-WIA | $3.83 billion (fiscal year estimate) | 65 |
| 53. Mando | $3.29 billion (fiscal year) | 61 |
Help from next door
Neil De Koker, CEO of the Original Equipment Suppliers Association in suburban Detroit, says the improving quality of South Korean vehicles boosts the reputations of South Korean suppliers.
"If you look at the Elantra and various products by Hyundai, you can see that the quality has improved over the years," De Koker says. "The only way you could do that is if the suppliers are doing the same thing."
South Korean suppliers are emerging from a period of straining to keep up with the growth of Hyundai and Kia, he says. Now they are getting more work with non-Korean automakers. Both South Korean automakers and suppliers are likely to be more open to non-Korean suppliers, De Koker adds.
"As they continue to grow and local content becomes more important, I think that we'll see opportunities for American suppliers," he says. "They have been a tough nut to crack."
Acceptance in Japan likely will open more international doors, too.
When Nissan Motor Co. wanted to cut costs at its plant in Kyushu, the southwestern island of Japan closest to South Korea, sourcing from across the narrow Korea Strait that separates the countries was key to the plan. The plant set up a division in April to scout South Korean suppliers.
It has decided on 200 items from 26 South Korean parts makers. The parts will go into the new NV350 van Nissan plans to build in Kyushu.
"The quality of those suppliers has really increased," Nissan spokesman Toshitake Inoshita says. "And Kyushu has a logistical advantage in being located near Korea."
Toyota Motor Corp., pressed by the yen's exchange rate to source cheaper parts from overseas, may be next.
Last summer, Japan's biggest automaker hosted a mission of supplier hopefuls brought in by the South Korean government's Korea Trade-Investment Promotion Agency, Japan's Nikkei business daily reported. About 2,500 people -- including Toyota President Akio Toyoda -- attended the fair to size up the South Korean products.
Pricing gives South Korean suppliers an edge with carmakers looking to expand in booming emerging markets where cost is king. But low cost is only one factor fueling their success. Technological acumen is another.
Targeting technology
Healthy balance sheets at Hyundai-Kia mean solid finances and big r&d spending at South Korean suppliers. And they tap a well-educated work force for cutting-edge output.
Halla Climate Control Corp., for instance, counts Ford, GM, Chrysler, BWW, VW, Audi and electric car manufacturer Tesla among its overseas customers.
The South Korean maker of energy-efficient heating and air conditioning systems won an Automotive News PACE Award for supplier innovation in 2007. Halla Climate Control also was honored in 2009 by Automotive News for one of 25 innovations that changed the nature of the industry, thanks to its revolutionary wave-blade fan and saw-tooth shroud that slash noise, weight and energy use.
And LG Chem Ltd.'s contract with GM threw a spotlight on South Korea's advances in what some see as a cornerstone of tomorrow's car technology: lithium ion batteries.
Germany's Robert Bosch GmbH turned to South Korea's Samsung SDI for its own lithium ion battery sourcing. Their joint venture, SB LiMotive, will supply batteries to BMW.
But standing center stage can also be a double-edged sword.
When LG Chem beat A123 Systems of Waltham, Mass., to supply the battery cells for the Chevrolet Volt plug-in hybrid, it seemed to only underscore South Korea's technical achievement.
Then in November, the National Highway Traffic Safety Administration started investigating the battery packs after some Volt batteries caught fire following federal safety tests.
GM developed a fix that would better protect the Volt's 400-pound lithium ion battery pack by adding steel reinforcements and taking other steps to prevent coolant fluid from leaking.
But after the battery fires, GM announced it was moving to a less volatile battery chemistry less likely to catch fire for the electric version of its Chevy Spark small car going on sale next year.
That battery, which uses a phosphate-based lithium battery, is made by A123.
Bloomberg contributed to this report
| Exports climb | ||
| South Korean suppliers ship more parts overseas. | ||
| Value of parts | Change from previous year | |
| 2012 | $25.5 billion* | 10% |
| 2011 | $23.1 billion | 23% |
| 2010 | $18.8 billion | |
| *Projected | ||
| Source: Korean Auto Industries Co-op Association | ||
You can reach Hans Greimel at hgreimel@crain.com. -- Follow Hans on 
