Bloomberg News

Hyundai, Kia to Lower Fuel-Economy Estimates After Probe

November 02, 2012

Hyundai Motor Co. (005380) and Kia Motors Corp. (000270), whose growth has been aided by 40-mile-per-gallon claims, will compensate U.S. customers for overstating the fuel efficiency of their latest models.

The Seoul-based affiliates, which share engines, model platforms and a chairman, must re-label the window stickers on their cars and trucks for the error, the U.S. Environmental Protection Agency said yesterday. The automakers said in a statement that they will issue debit cards to buyers of about 900,000 vehicles sold in the U.S. in the past two years to reimburse them for higher-than-expected fuel expenses.

“Given the importance of fuel efficiency to all of us, we’re extremely sorry about these errors,” John Krafcik, chief executive officer of Hyundai’s U.S. sales unit, said in the statement. “We’re going to make this right for everyone.”

The companies said the overstatement resulted from “procedural errors” at their testing facility in South Korea.

Combined U.S. sales of Hyundai and Kia vehicles this year through October reached a record 1.07 million cars and trucks, placing them sixth in the U.S. this year, ahead of Nissan Motor Co. Led by its Elantra compact, Hyundai boasted in its advertising of having more cars offering 40 miles per gallon in highway driving than competitors. With the revisions, no Hyundai or Kia model reaches 40 mpg.

The companies plan to run newspaper ads Nov. 4 apologizing for the incorrect ratings, with details on how to apply for a refund card.

Soul Decline

“In an industry where reputation is so important, this will undoubtedly give both carmakers ugly black eyes,” John O’Dell, green-car editor for Edmunds.com, said in a telephone interview. “In our reviews we’ve pointed out that we can’t come anywhere close to getting the mileage they claim.”

Consumer Watchdog, an advocacy group based in Santa Monica, California, filed a lawsuit in July claiming Hyundai overstated mileage for 2011 and 2012 Elantras.

The Kia Soul will face the largest adjustment, down 6 miles per gallon in its highway rating. Most 2012 and 2013 models from the automakers will be adjusted by 1 or 2 miles per gallon, the agency said yesterday in a statement.

“EPA’s investigation will help protect consumers and ensure a level playing field among automakers,” Gina McCarthy, assistant administrator for the agency’s Office of Air and Radiation, said in the statement.

EPA’s testing of vehicles occasionally uncovers individual vehicles with incorrect labels, and twice since 2000 the agency required changes. This is the first time a large number of vehicles from the same manufacturer have deviated so much, according to the EPA.

Debit Cards

“EPA doesn’t have the resources to individually test each vehicle and it relies on manufacturers to do the testing and submit legitimate numbers,” O’Dell said. “There were enough consumer complaints to warrant a review of the data.”

Owners of vehicles affected by the revision will receive debit cards with values covering the difference in “the EPA combined fuel-economy rating, based on the fuel price in their area and their own actual miles driven,” plus an additional 15 percent, Hyundai and Kia said in their statement.

The total cost of those reimbursements can’t yet be calculated, said Jim Trainor, spokesman for Hyundai’s U.S. unit.

“Even with the correction, the fundamentals of what made Hyundai and Kia brands a success in the U.S. do not change,” said Jesse Toprak, industry analyst for TrueCar.com, a vehicle pricing and data website in Santa Monica, California. “They still offer some of the best value propositions in the industry, along with attractive styling and low cost of ownership.”

Hyundai a decade ago reimbursed U.S. customers with discounts on accessories and offered extended warranties and roadside assistance for overstating horsepower ratings, which the company said then were also the result of testing errors.

Hyundai’s U.S. sales unit is based in Costa Mesa, California, and Kia’s is in Irvine, California.

Hyundai Motor fell 0.5 percent to 215,000 won in Seoul yesterday, before the EPA announcement. Kia rose 0.7 percent to 60,500 won.

To contact the reporter on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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