SEOUL - South Korea's Kia Motors Corp., whose slide into bankruptcy helped pull the country into financial crisis two years ago, is recovering fast and expects to turn a profit this year.
Kia Motors said it would be able to post 100 billion won ($83.3 million) in net profit for calendar 1999, against a 6.65 trillion won loss in 1998.
'It is a prodigious turnaround,' said Yang Dong-ki, analyst at ING Barings. 'Kia has slimmed down sharply and is now poised to take advantage of a recovering economy better than others.'
Kia's sales in the first half, 345,891 units, were up 51.8 percent on the same period of 1998 and the company expects its first-half net loss to shrink to just 70 billion won from 4.2 trillion a year earlier.
More than anything else, Kia Motors has benefited from increased interest in minivans, its specialty.
Kia Motors collapsed under about 12 trillion won of debts in 1997, helping to drag the country into a foreign-exchange crisis, which led to a humiliating $58 billion bailout arranged by the International Monetary Fund later in the year.
Analysts said Korea's faster-than-expected economic recovery and the resultant growth in demand for vehicles have lifted South Korean carmakers out of last year's doldrums. The country's gross domestic product is seen more than 6 percent higher this year, a sharp turnaround from the fall of 5.8 percent between 1997 and 1998, according to a government forecast.
'Well, we have resuscitated the business and are kicking around again with the rapidly growing economy and a little bit of luck,' said Uhm Sung-yong, chief spokesman for Kia Motors. 'Years of cost-cutting efforts and returning consumer confidence after Hyundai's takeover have begun paying off.'
Kia has slashed its workforce by 40 percent to 29,600 since the end of 1996. As a result, Kia's per-capita production increased by about 50 percent in three years. Hyundai Motor developed the Visto minicar and the Carstar minivan, but gave them to Kia to strengthen its position in niche markets.
Kia's Carnival minivan, made in seven- and nine-seater models that debuted in January 1998, and the smaller Carens minivan, which came out two months ago, sell more than 5,000 units per month each. Kia said it had doubled the annual production capacity for the two models to 100,000 each to cope with orders.
Customers spend two or three months on a waiting list to buy Kia's minivans, which can run on cheap fuels such as liquefied natural gas or diesel and carry much lower taxes than standard passenger cars.
Kia's minivan models accounted for 44 percent of its domestic sales in July.
Analysts said the advantage of business ties between Kia and Hyundai could ultimately persuade the two carmakers to merge completely as there was still a lot of room for downsizing. They said Kia was still using well below 70 percent of its factory capacity, because it had curbed production of passenger cars such as the Credos mid-sized sedan.
'It is too early to judge Kia's survival,' said Ji Sung-chul, analyst at LG Securities. 'This year's recovery looks stronger because last year's performance was so poor.'
Kia's creditors wrote off some 7 trillion won of the company's debt of 9 trillion won when Kia was transfered to Hyundai, skimming off major financial burdens.
'Kia seems to be running on a highway now,' said Han Kum-hee, analyst at Merrill Lynch. 'I think cooperation with Hyundai has also worked out.' Integration of research and development and expansion of platform-sharing with Hyundai will save a huge amount of costs for Kia, Han added.
Analysts said domestic car demand would rise 15 to 20 percent annually by 2001. But they said the possible entry of General Motors Corp. into Korea via a takeover of Daewoo Motor, an unlisted unit of the debt-ridden Daewoo Group, could see some demand go to the US manufacturer.