SEOUL - A Korean court last week put Kia Motors Corp. and its Asia Motors affiliate into the hands of an official receiver empowered to begin selling the companies piece by piece and building by building if he chooses.
While an immediate breakup is a remote possibility, the appointment of textile executive Yoo Chong-Yul as receiver finally clears the way for Kia to be sold. That possibility began to unfold last July when the company first sought court protection under pressure from its lenders.
If Yoo cannot find buyers for Kia and Asia in their entirety, he will have to begin selling assets piecemeal to pay down debt.
The implications of last week's developments for Kia's expansion into the United States are not immediately clear, although executives of Kia Motors America continue to put a brave spin on news out of Korea.
'We'll keep doing what we've been doing. We'll keep opening dealers in a methodical manner, and keep selling cars,' said spokesman Geno Effler.
'If we can determine anything, it is that Kia is going to remain a viable global car company. The question is just who's going to control and own it.'
WORKERS ARE UNHAPPY
Yoo's appointment - and its implications - triggered a three-day warning walkout by Kia workers, who had sought the appointment of Kia Motors President Park Jae-Hyuk as receiver.
The reason: Yoo's primary job is to look after Kia's lenders, all of whom are demanding immediate repayment on the company's debt of some $3.6 billion. Park has sought to stretch out debt repayment while restructuring Kia and maintaining its independence.
Kia's union also threatened a 'serious' action - presumably an indefinite strike - if the government fails to promise publicly by April 24 that it will not allow Kia to be sold.
Fears quickly spread that the Kia walkout might trigger a wave of labor unrest across Korea, where unemployment has soared because of layoffs at smaller companies. Prices tumbled on the Seoul Stock Exchange last Thursday and Friday because of worries about labor strife.
Industry leader Hyundai Motor Co. is expected to serve within days a legally required 60-day notice of planned layoffs to its union. Hyundai already has eliminated overtime and has sent workers home, with pay, for one or two weeks as it tries to cut inventories of unsold cars.
But that is unlikely to be enough. With first-quarter sales of 64,000 vehicles in Korea off 50 percent from a year earlier, analysts say that as many as a third of Hyundai's 46,000 workers face the ax.
Hyundai's union is expected to strike if the company seeks layoffs.
Hyundai has said it is interested in buying Kia. In addition, Samsung Motors Co. is understood to be talking with Ford Motor Co., which owns about 17 percent of Kia, about a bid, although neither company has said publicly that it wants to buy Kia.
A STRIKE WOULD HURT
A prolonged strike would inflict further damage on an already seriously weakened Kia, but analysts say it is unlikely to win public sympathy or preserve Kia as an independent automaker.
'I don't think the strike will change anything. The court has put the wheels in motion to resolve the Kia problem once and for all,' said Vince Kim, auto equities analyst with SG Securities Ltd. in Seoul.
Earlier in the week, Park had sought to show that his restructuring program was working.
He said Kia posted a first-quarter profit of 45 billion won, or about $32.1 million at current exchange rates, in contrast to a loss of $17.9 million a year earlier.
Revenue rose 11.7 percent to $985.7 million even though vehicle sales declined 16.1 percent to 121,367, he said.
The company's Korean sales plummeted 43.5 percent, to 36,199, but exports increased 5.6 percent, to 85,168.
One reason for the turnaround is that Kia has not been required to pay interest on its debt of $3.6 billion, which is roughly four times its equity.
The court's decision last week ended nearly nine months of bankruptcy limbo for Kia. During that time, the company tried to remain in control of its fate while its creditors sought to have it put under court receivership in order to recover their loans.
In October, the government proposed that the state-owned Korea Development Bank convert its loans to Kia into equity, making it Kia's largest shareholder and in effect nationalizing the carmaker. However, that never happened.
Now, under Korea's Byzantine bankruptcy court procedures, it could be several more months before the court makes a final ruling on Kia's fate. In the meantime, the courts will review creditors' claims, draft a program for the liquidation of assets and unravel the knotty problem of cross-payment debt guarantees.
But the problems of the Korean auto industry are greater than Kia alone, analyst warns.
'The industry's problems are not going to be solved anytime soon,' said Lee Sang-Yong, auto industry analyst with KEB Smith Barney Securities Co. Ltd. in Seoul.
'The domestic market is down, and exports haven't taken up the slack as hoped. And with Samsung's entry into the business, the overcapacity problem is getting bigger, not smaller. Now, in addition, there's a real danger that Kia's labor problem may spread to Hyundai and Daewoo, shutting down the industry.'
Staff Reporters James B. Treece in Tokyo and Mark Rechtin in Los Angeles, and National Editor James R. Crate in Detroit contributed to this report