Hyundai Motor, South Korea’s No. 1 automotive company, has pledged 1.67 trillion won ($1.4 billion) in support of local small and midsize auto parts suppliers in a move to restore stability and bolster research and development, the company said Thursday.

Due to tumbling sales at Hyundai and Kia, which stand as the world’s fifth-largest automaker, their parts suppliers have been posting operating losses or seeking debt workout programs in recent months.

To assuage growing instability, in October the government stepped in to provide special credit guarantees worth 1 trillion won.

Also on Thursday, new Deputy Prime Minister for Economy Hong Nam-ki said during a visit to a local auto parts supplier that the government would announce a set of support measures next week to assist the troubled auto parts industry.

Hyundai said in its statement, “The 1.67 trillion won will be used to restore management stability at small and midsize suppliers, foster the development of auto parts equipped with eco-friendly and future mobility, and strengthen the ecosystem of first-tier to third-tier suppliers.”

As a first step, a 140 billion won fund will be created for partners to use to stabilize business and foster technological development. They would have to pay the funds back later on.

To reduce the financial burden that suppliers face when investing in R&D and mass production, Hyundai plans to prepay part of the expenditures, the company said.

The new system is expected to provide 1.4 trillion won in prepaid expenditures between 2019 and 2023.

In a separate program, Hyundai Motor, Kia Motors and Hyundai Mobis said they would commit a combined 15 billion won for suppliers to use to normalize business.

Seeking to ramp up production of Nexo fuel cell electric vehicles, Hyundai also plans to set aside investments worth 44 billion won so that suppliers can expand and upgrade their facilities.

The Nexo FCEV is manufactured with parts from some 300 companies, out of which roughly 160 are local firms that produce auto parts exclusively for hydrogen vehicles, the company said.

Hyundai added it would support some 800 second- and third-tier suppliers in improving production efficiency by covering the installation of IT- and software-based real-time automated control systems at factories over the next three years, starting next year. 

By Kim Bo-gyung (lisakim425@heraldcorp.com)