How Korean Tensions Could Affect American Car Shoppers

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Following a nuclear test and subsequent global sanctions, escalating tensions on the Korean peninsula have North Korea issuing near-daily threats against its southern neighbor and the U.S. — and the latest developments have left nearby nations girding for conflict. Keep holding your breath; one top U.S. admiral told Congress he couldn’t recall a more tension-fraught period since the Korean War ended in 1953. Should aggressions against South Korea occur, it would doubtless affect the country’s huge auto industry, and the shock waves would hit U.S. dealerships in a matter of weeks.

Just how big is the South Korean auto industry? Here’s a snapshot. Hyundai claims its massive Ulsan facility, which employs more than 34,000 people on the country’s southeast coast, is the world’s largest auto plant. And GM Korea, which runs five assembly plants in South Korea and a sixth in Vietnam, builds a quarter of all Chevrolets sold across the globe.
U.S. Impact
Plenty of those cars come here. Census data shows that South Korea ranked fifth in overall transportation equipment exports to the United States in 2012. The U.S. imported $10.6 billion in passenger cars from the country, excluding tariffs and shipping costs. And auto imports go beyond finished cars and trucks. From alternators to airbags, vehicle components constituted another $5.6 billion in imports. Put it all together, and the U.S. imported about as many cars, trucks and vehicle components from South Korea in 2012 as it did from China, the United Kingdom and Sweden combined.

More than a dozen Korean-built cars made up a big chunk of that total: the Buick Encore, Chevrolet Spark, Hyundai Accent, Hyundai Azera, Hyundai Elantra coupe and hatchback (GT), Hyundai Equus, Hyundai Genesis and Genesis Coupe, Hyundai Tucson, Hyundai Veloster, Kia Forte sedan and coupe (Koup), Kia Rio, Kia Soul and Kia Sportage. Hyundai even imports a few Elantra sedans to meet sales demand. Altogether, those models accounted for more than 130,000 U.S. sales through March 2013 or around 3.6% of all new-car sales for the first quarter of the year.

U.S.-built Hyundai-Kia products have plenty of Korean content, too. Nearly half the Kia Sorento’s parts, by cost, come from South Korea, according to data from the National Highway Traffic Safety Administration. More than half the parts in the Hyundai Sonata, Hyundai Santa Fe Sport and Kia Optima are Korean too; so are nearly two-thirds of U.S.-built Hyundai Elantra sedan’s parts. (NHTSA still has no figures for the non-sport, three-row Santa Fe.)

Detroit automakers also have plenty of skin in the game. The Detroit News reports South Korea is home to at least two dozen Ford and Chrysler suppliers. Then there’s GM. Remember Daewoo? The General bought it in 2002, renaming it GM Korea nine years later. Korean fingerprints extend beyond the Spark and Encore: NHTSA reports 17% of the Chevrolet Volt’s parts come from South Korea, and so do more than a quarter of Chevrolet Sonic’s parts. Automakers aren’t required to name countries that contribute less than 15% of parts, so it’s likely that dozens more cars also contain parts from South Korea.

“It is possible that there is at least one South Korean supplier that serves many auto manufacturers, which could broaden the impact of the escalating tensions,” said Kristin Dziczek, who directs the Labor and Industry Group for the Center for Automotive Research in Ann Arbor, Mich. “The duration of any supply chain disruption and possible impact to North American vehicle production is difficult to determine.”

One in 11 Cars Affected
Add up all the cars with significant Korean content, and you get some 330,000 new cars sold through March. Should all of them face supply shortages, it would affect close to 9% of the U.S. new-car market, or about one out of every 11.2 new cars sold.

Shoppers wouldn’t find all of them missing, at least not just yet. As of April 1, Chevrolet dealers had a glut of Sonics and Volts on lots for well more than 100 days apiece, compared to the industry’s 60-day average, according to Automotive News data. A production halt would still leave plenty of cars for interested shoppers. Anyone shopping the Korea-built Spark and Encore, by contrast, could see a shortfall; both cars have fewer than 60 days’ inventory apiece. And Automotive News reports Hyundai and its Kia subsidiary began April with a 48-day supply, which could leave them with shorter stock still. (The automaker doesn’t break out specific models.)

Meeyoung Song, a Hyundai spokeswoman based in the Seoul area, declined to comment.

GM Global purchasing spokesman Tom Henderson told Cars.com that GM has had “no disruptions related to flow of material in and from the region. Like all supply-chain risk, we continue to execute contingency plans to minimize risk to our operations on a global basis.”

Global supply disruptions in 2011 and 2012 — from natural disasters in Asia to a resin shortage in Germany — have prepared the industry for this, CAR’s Dziczek pointed out.

“Automakers who face production risks from the possible conflict on the Korean peninsula are likely making and executing their contingency plans right now,” she said. “Over the past few years, there have been many examples of supply interruption and production recovery in the auto industry — so, disruptive events like this one have become a common element of doing business in this global industry.”

Still, disruptions will be unavoidable.

GM CEO Dan Akerson told CNBC on April 4 that shifting production from the region anytime soon will be difficult. If instability becomes long term, GM may consider moving production away. “If there were something to happen in Korea, it’s going to affect our entire industry,” Akerson said. “Not just General Motors.”

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