DATE: Wednesday, September 17, 1997         TAG: 9709170514
SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY MICHAEL CLARK, STAFF WRITER 

                                            LENGTH:   63 lines

KIA FACES UNCERTAIN FUTURE BANKS WILL CALL BACK LOANS WITHOUT MORE RESTRUCTURING

August was the best sales month ever for Kia Motors America, but September holds an uncertain fate for its South Korean parent conglomerate, The Kia Group.

South Korean banks are threatening to remove bankruptcy protection given last summer to that country's third-largest automaker, which means it would automatically default on $10 billion in debt. The banks have set a deadline of Sept. 29 and won't extend the protection unless Kia chairman Kim Sun-Hong agrees to resign - a step he's rejected.

Despite the financial news, Kia sales in the United States, and Hampton Roads, continue at a brisk pace.

Nationally, Kia Motors America, in Irvine, Calif., sells two models in the United States - the Sephia sedan, with a base price of less than $8,000, and the Sportage sport utility vehicle, starting at less than $13,000.

Kia sold more than 6,300 vehicles in August, compared with less than 4,300 in August 1996, company spokesman Geno Effler said.

No contingency plans are in place in the United States should South Korean banks force the carmaker's parent into bankruptcy.

``Everything is status quo,'' Effler said. ``We're opening new dealerships all the time. In fact, August was our best sales month ever.''

Rick Gallaer, president of the Pomoco Group Kia at Poquoson Motors, Hampton, agreed.

``Locally, there has been no impact at our dealership,'' he said. ``August sales were up 35 percent from the month before.''

The Pomoco dealership is one of a handful of Kia dealers in Hampton Roads, including Hall Auto Mall, Oyster Point Dodge/Kia, Bay Chevrolet/Kia and Greenbrier Kia.

Gallaer said he's been in close contact with Kia America and, while he is ``confident things will work out'' in South Korea, he believes there are other underlying factors behind the banks' actions.

Among those factors is the prospect that South Korean banks feel the company is not managed well, said Tai Shin, professor of economics at Virginia Commonwealth University and a native of South Korea.

``The banks loaned heavily to Kia and gave (the company) breaks for significant restructuring,'' Shin said. ``That means selling off assets and the group of banks don't feel they've done enough restructuring.''

Shin said South Korea's finance minister tried to get two other large South Korean conglomerates, Samsung and Hyundai, to take over Kia but both decided against the move.

``Although the government and the banks want to see that, because the loans would be paid back,'' he said, ``it doesn't look like it will happen.''

The South Korean government won't let Kia go completely bankrupt, Shin said, but there probably will be more restructuring.

George Hoffer, VCU economics professor and automotive industry analyst, said he ``would be dumbfounded'' if Kia failed.

Kia sold more Sephias last month than Hyundai sold Accents, Hoffer said.

``And Hyundai has been here for 12 years.''

But sales are not the problem, Shin said. It's cash flow.

``No matter how many sales you have,'' he said. ``If you don't have the money to pay back loans, you go into bankruptcy.''

MEMO: Bloomberg Business News contributed to this report. ILLUSTRATION: The Virginian-Pilot/file color photo

Area Kia dealers, including Hall Auto Mall...

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