Why GM's CEO Is Worried About Korea

General Motors (NYSE: GM  ) CEO Dan Akerson said on Thursday that his company is closely watching the crisis in Korea, has made contingency plans for its employees there, and may consider moving its operations if tensions continue to escalate.

That's a big deal. GM has big operations in South Korea, and they're a critical part of the company's global plan. Some of GM's facilities, including its Korean headquarters, are only about 20 miles from the demilitarized zone that divides North and South Korea.

Any disruption to those operations could be an expensive problem for the General.

A critical hub for GM's global plan
GM doesn't sell a whole lot of cars in South Korea, only about 145,000 last year -- but it's the country's third-largest automaker after giant Hyundai (NASDAQOTH: HYMTF  ) and up-and-coming Kia (NASDAQOTH: KIMTF  ) . GM's five South Korean factories produce nearly 1.5 million vehicles a year, most of which are exported to markets around the world – including the United States.

GM has 17,000 employees in South Korea, and those aren't just manufacturing folks. GM's global design center in Inchon is one of seven major GM design and engineering centers around the world, and plays a significant part in GM's global small-car development. Much of the development work on the well-regarded Chevy Cruze and Sonic small cars was done in Korea.

Long story short, any disruption to those production and design facilities would be an expensive problem for GM. It could also impact other global automakers, including Ford (NYSE: F  ) .

The industry's supply chain could be disrupted too
Disruptions to key auto-industry suppliers in the wake of the 2011 Japan tsunami caused headaches for a number of automakers, most especially Toyota (NYSE: TM  ) and Honda (NYSE: HMC  ) , who saw production of key models grind nearly to a halt for months. Similar problems hit several automakers later that year, when flooding in Thailand led to shortages of electronic components used by many global auto companies.

Some analysts are concerned that a protracted Korean crisis could lead to a similar mess. Key auto-industry suppliers have important production facilities in South Korea, and supply disruptions could leave automakers scrambling for parts once again.

The Detroit News reported Friday that Ford relies on a "couple of dozen" suppliers with South Korean manufacturing facilities, and a Ford spokesman told the News that the company is watching the situation closely.

As Akerson's comments made clear, they aren't the only ones.

Worried about GM?
Few companies lead to such strong feelings as General Motors. But ignoring emotions to make good investing decisions is hard. The Fool's premium GM research service can help, by telling you the truth about GM's growth potential in coming years. (Hint: It's even bigger than you think. But it's not a sure thing, and we'll help you understand why.) It might help give you the courage to be greedy while others are still fearful, as well as a better understanding of the real risks facing General Motors. Just click here to get started now.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2348808, ~/Articles/ArticleHandler.aspx, 4/16/2014 7:01:32 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement