Kia faces uphill battle in accelerating growth

Kia Motors Corp. stated Tuesday that its new Slovak factory will serve as a bridgehead into Europe, one of its key markets. But its shares have been sliding the whole month of April to close at 11,000 won yesterday, with only four sessions seeing advances. The decline has continued for nine straight days.
Experts point to aggravating financial conditions at the nation’s second-largest automaker and affiliate of Hyundai Motor Co. The Finance Ministry and the Commerce Ministry said they are closely monitoring Kia’s profitability, debt ratio and debt size after related industries raised questions about the soundness of the carmaker’s financial statements.
The loans that Kia has made totaled 2.9 trillion won ($3.1 billion) as of late last year, up from 2.5 trillion won the year before, and cash reserves fell by 485 billion won over the one-year period.
Securities and bond markets are also questioning whether the company is experiencing cash flow problems coupled with worsening profitability, according to industry sources.
Kia spent about 1.4 trillion won building the Slovak plant, the first of its kind for the automaker in Europe. The sizable investment was meant to redeem the sluggish vehicle sales caused by the won’s sharp rise against key currencies, but if the sales of vehicles built at the factory do not turn out as good as projected, it could deal a harsh blow to the carmaker, said an analyst who requested anonymity.
The situation is similar at Kia’s sister automaker. Hyundai Motor fell from the top 10 in market value on the Kospi yesterday, for the first time since Feb. 8, 2001. Analysts came up with a bleak outlook for its first-quarter earnings, scheduled for announcement in early May.
“Hyundai Motor’s accumulated vehicle sales for the first three months of this year were down 1.4 percent from a year ago, and sales revenue and profit will be much lower than the previous estimation,” said Kim Jae-woo, an analyst with Mirae Asset Securities Co., in a recent report.
The top automaker’s earnings in overseas markets are also far from upbeat.

By Seo Ji-eun Staff Writer [spring@joongang.co.kr]