In a desperate attempt to raise operating cash, financially strapped Kia Motors Ltd. last week offered 30 percent discounts to buyers in Korea who paid cash for a new car.
The fire sale worked. Instead of its usual 1,000 sales a day, Kia sold 14,000 the first day. In three days, it cleared out its entire backlog of about 47,000 units.
Whether that sale, and similar sales of Kia assets, will be enough to keep Korea's third-largest carmaker and its parent afloat remains to be seen, however.
A banking consortium that seized effective control of Kia Group two weeks ago said the group's debts total some 12.2 trillion won, or about $13.7 billion at current exchange rates, with the automaker accounting for about $6 billion of that.
The banks, which have scheduled a reorganization meeting with Kia executives in Seoul for Wednesday, July 30, are expected to demand a new management team and the sale of several subsidiaries. Kia is Korea's eighth-largest industrial combine.
'I think (the breakup) of the Kia Group is inevitable,' said Lee Wonil, Seoul-based head of research for KEB Smith Barney Securities.
Stephen Marvin, Seoul-based head of research for Ssangyong Investment & Securities, agrees. 'It's highly unlikely Kia Motors can survive on its own, but it's highly politically unlikely it'll be allowed to die,' he said.
PIECE BY PIECE
Lee and Marvin predicted that Kia will be sold off in pieces to other Korean carmakers.
Indeed, the company said late last Thursday, July 24, that it was now willing to consider the sale of its Asia Motors Co. affiliate, a truckmaker. A day earlier, it had rejected that possibility.
Geno Effler, a spokesman for Kia Motors of America, said the U.S. company had been told by the parent to continue business as usual.
'(Kia Korea) expects us to continue our market-by-market rollout and get dealerships in all states and sell more cars. They're telling us we don't have anything to worry about,' he said.
'They're still making cars and shipping them to us, and we're still selling them.'
For now, rivals Hyundai Motor Co. and Daewoo Motor Co. have refrained from taking advantage of Kia's troubles. Indeed, they have promised to extend a hand to Kia's suppliers during the coming months by paying cash instead of 90- or 180-day promissory notes.
Their motive: to keep Kia out of the clutches of upstart Samsung Motor Inc. Samsung Group's entry into autos would be greatly aided by having Kia's suppliers and dealers.
Longer term, Hyundai and the others will continue to circle Kia like vultures, eager to pluck off any valuable assets offered for sale and to make sure their rivals don't swoop in first.
Analysts doubt, though, that the crisis will lead to a reduction of Korea's excess carmaking capacity that is at the heart of Kia's woes.
'I see no rationalization, no consolidation at this point,' said Marvin. Korean carmakers still plan to raise capacity by between 15 and 20 percent next year, he said.
'I think all the domestic automakers will be losers if the current Kia turmoil is not handled in the right way,' said Kang Dong-hyun, manager of the industrial analysis department of Dongsuh Securities.
One possible scenario emerged when the government said late last week that it may ask Korea's creditor banks to swap their debt for equity in Kia.
'When the government 'asks' in Korea, it's not really asking,' Marvin said.
Lee, however, was doubtful about an equity-for-debt swap, which has never happened in Korea. It would dilute the stake of existing shareholders, including Ford Motor Co., which owns 9.4 percent of Kia.
Kia could still struggle back on its own if its reorganization plan is accepted, of course.
Kia's own rescue plan calls for raising $4.7 billion by selling assets worth an estimated $3.5 billion, cutting 5,000 jobs including 30 percent of top management, and shedding 13 of its 28 affiliates, including its debt-ridden Kia Steel and Kisan construction units.
Kia's unions also have rallied to the company. The company's 25,000 workers have vowed to work on weekends and holidays while giving up all bonuses and overtime. One union is soliciting loans equal to $11,200 from each of its members to help keep Kia afloat.
Suppliers complain of being squeezed already.
Steel supplier Pohang Iron & Steel Co. cut off shipments to Kia for a day until the government stepped in and promised it would be paid, averting what would have been a complete shutdown of Kia's carmaking operations.
Staff Reporter Mark Rechtin in Los Angeles contributed to this report.