Skip to main content

The Globe and Mail

Fuel mileage error to cost Hyundai-Kia $100-million

A visitor looks at a Hyundai car at the Paris Mondial de l’Automobile Sept. 28, 2012. Both Hyundai and Kia have admitted to overstating the fuel economy ratings of some of their vehicles.


Hyundai Motor Co. and its affiliate Kia Motors Corp. stand to lose about $100-million (U.S.) because of their plan to fund gas purchases of owners who bought vehicles whose fuel economy was exaggerated by the auto makers, Moody's Investors Service said.

Last Friday, the two companies, both headquartered in South Korea and under the umbrella of the Hyundai Motor Group, admitted overstating the fuel economy ratings of some of their vehicles by one to six miles per gallon.

The admission came after the U.S. Environmental Protection Agency found errors in the mileage estimates of 13 Kia and Hyundai models from the 2011 to 2013 model years.

Story continues below advertisement

Hyundai and Kia have said customers will receive a debit card to reimburse them for the differences with the EPA fuel economy rating, based on the fuel price in their area and their miles driven. An extra 15 per cent will be added to the amount to acknowledge the inconvenience, and owners will be able to refresh their cards for as long as they own their vehicles, the companies said.

About 900,000 vehicles sold in the United States through Oct. 31 were affected, and another 172,000 vehicles in Canada.

Chris Park, a Moody's senior credit officer, said North America accounted for about 24 per cent of Hyundai's global sales in the first nine months of this year.

Moody's said that until these cars are scrapped, the cost of buying customers' fuel will be about $100-million.

The auto makers did not disclose how much the overall reimbursement program could cost when they addressed the issue last Friday. John Krafcik, head of Hyundai Motor America, said only it would be "certainly millions" of dollars.

Moody's said additional expenses may be incurred by the two auto makers, but it did not give an estimate.

The Moody's report does not consider the legal challenges facing Hyundai and Kia, including lawsuits expected to be filed by disgruntled consumers.

Story continues below advertisement

One such challenge is a class-action lawsuit filed this week in the Southern District of Ohio. The suit is on behalf of three people and seeks a jury trial to include others who bought Hyundai or Kia vehicles.

They seek compensation for the "diminution of value" of their vehicles as well as the right to rescind the purchase of those vehicles, according to the 14-page complaint filed in Cincinnati.

Moody's also said this issue, coupled with lack of new model launches in the near term, would mean Hyundai-Kia will lose some of their 9.2-per-cent share of the U.S. new vehicle market.

While U.S. gasoline prices soared to more than $4 per gallon in 2008 and two of the three major U.S. auto makers faced bankruptcy, Hyundai and Kia increased their share of the U.S. market.

Moody's said that while the Hyundai and Kia brands will be damaged because both companies marketed vehicles based on stellar fuel economy ratings, the issue will not affect Moody's Baa1 rating debt for each company or its stable outlook.

The Baa1 rating is the eighth of 10 Moody's ratings considered investment grade. It would have to fall three steps before hitting junk bond status.

Story continues below advertisement

"Both companies have adequate financial cushions and the impact on their competitive positions will be manageable" Moody's said.

Report an error

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

Please note that our commenting partner Civil Comments is closing down. As such we will be implementing a new commenting partner in the coming weeks. As of December 20th, 2017 we will be shutting down commenting on all article pages across our site while we do the maintenance and updates. We understand that commenting is important to our audience and hope to have a technical solution in place January 2018.

Discussion loading… ✨