Ongoing political tension in Korea that includes military threats from the North is causing concern amongst carmakers, with some looking at contingency measures in the face of potential instability in the supply chain.

North Korea’s closure of a special cooperative industrial zone between North and South Korea also includes several automotive suppliers, although the current impact on production appears to be minimal. However, there is concern in the industry that a protracted crisis in Korea could lead to the sort of disruption that was seen in the wake of the Japanese tsunami of 2011 and the Thai floods that hit production later the same year.

GM Korea, which has five plants in South Korea and produced 40% of Chevrolet vehicles globally in the country, is among the manufacturers planning for contingency measures. A spokesperson for the company told Automotive Logistics News that it was watching the situation closely and maintained “hopes for continued stability for all Korean people and the region”.

“Are we making contingency plans? Absolutely, we would be irresponsible not to,” said the spokesperson. “However, other than to say we are committed to upholding the safety of our employees and assets, and focused on continuity of supply for our customers, we’re not in a position to comment on those plans.”   

GM CEO Dan Akerson, however, said last week that tensions with the North could lead the carmaker to shift production from South Korea in the long term – although he said this would be difficult.

Union officials in South Korea told Reuters that Akerson’s comment was meant as a threat to the country’s unions ahead of negotiations on labour costs and practices. GM already announced last year that it would not produce the next generation Cruze in South Korea. The country’s competitive edge in costs has deteriorated following the rise of labour costs and the appreciation of the Korean won.

A spokesperson for Ford, which has suppliers in South Korea, said she could not comment on specific plans in the event of violence in the region but that the company was watching the situation closely.

Hyundai-Kia was also unwilling to comment, stating only that it was “inappropriate to discuss what we will do or what contingency plans we may have when the matter at hand is related to the entire nation”.

North Korea has already closed the Kaesong industrial zone, a special administrative industrial region of North Korea that includes an industrial park operated as a collaborative economic development with the South. The park includes four automotive parts suppliers – Daiwha Fuel Pump, J&J Trading, SAMAS and Uni World – as well as two firms supplying semi-conductors. However, GM and Kia said they didn’t expect any impact from the situation at the Kaesong industrial zone as the carmakers didn’t have any direct supply from there.

The launch of a rocket in December last year and a third underground nuclear test in February this year, have led to international condemnation and a step up in sanctions. Following the commencement of military drills by the US and South Korea in March, the North Korean government under Kim Jong-un said it was entering “a state of war” with republic in the south and has threated the US with nuclear strikes. North Korea has also restarted the Yongbyon nuclear reactor.

The US military has moved ships and planes toward South Korea over the past two weeks.

Some commentators have speculated that the brinkmanship shown by the North Korean government is designed to damage foreign direct investment in South Korea or could be an attempt to force the US into fresh negotiations over the North’s nuclear plans.

While indicating that despite North Korea’s aggressive stance it doesn’t really want a war, Vivek Vaidya, vice president of Asia-Pacific, Automotive & Transportation at analysts Frost & Sullivan, admitted that the rhetoric does damage the reputation of South Korea as an investment destination and has an impact on foreign companies wishing to do so.

South Korea’s automotive production and domestic market appears so far to be unaffected by the potential crisis. Overall sales were relatively even compared to 2012, and imports actually on the rise. Exports, which make up the majority of the country’s volume, did fall by 16% compared to a year earlier, but this was attributed to shorter working hours agreed by labour unions with Hyundai and Kia, and not to tensions or worries over North Korea.

“Looking at the March domestic sales of South Korea, imports are still rising about 13% year-on-year, though domestic sales slightly dipped over 1% year-on-year,” said Namrita Chow, manager and senior analyst for World Markets Automotive and Supplier Business at IHS Automotive. “Based on March sales we so far do not see any reflection of the political tension in the vehicle sales market in South Korea.”