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Why GM's CEO Is Worried About Korea

By John Rosevear - Apr 5, 2013 at 4:15PM

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GM has a major presence in South Korea, and it's critical to the company's global operation. That's why tensions on the Korean Peninsula have GM chief Dan Akerson worried.

General Motors (GM 0.81%) 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 (HYMTF -0.03%) 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 (F 0.55%).

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 (TM 0.26%) and Honda (HMC 1.92%), 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.

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Hyundai Motor Company
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