Korean automakers agree to $360M deal
Washington — Korean automakers Hyundai Motor Co. and Kia Motors Corp. announced Monday they have agreed to a record-setting $360 million settlement for overstating fuel economy ratings. The agreement ends the Environmental Protection Agency's two-year investigation into the automakers' overstatement of mileage ratings for 1.2 million 2011-13 U.S. vehicles.
The settlement was announced by EPA Administrator Gina McCarthy and Attorney General Eric Holder. It is the largest of its kind and includes a $100 million civil penalty, forfeiting $210 million in greenhouse gas emission credits and spending $50 million to ensure independent auditing of its current and future vehicles and "measures to prevent any future violations," the EPA said.
McCarthy declined to comment on the status of mileage restatements of Ford Motor Co., BMW AG and Mercedes-Benz AG. All have restated mileage ratings on vehicles over the past year.
"This is by far the most egregious case," McCarthy told reporters, referring to Hyundai and Kia. She said the "discrepancies" by other automakers were "not as systemic." She called testing by the Korean automakers "systemically flawed" and not in line with "normal engineering practices and inconsistent with how any other automaker has been doing this."
After an investigation by the EPA, Hyundai and Kia in November 2012 agreed to restate expected gas mileage for 1.1 million vehicles in North America, including 900,000 in the United States. The penalty covers 300,000 vehicles that had improper window stickers approved by the agency but were corrected before sold. The settlement impacts about 600,000 of Hyundai's 2011-13 models and about 300,000 of Kia's 2011-13 models in the U.S.
The 2012 restatement reduced Hyundai-Kia's fleetwide average fuel economy from 27 to 26 mpg for the 2012 model year.
Individual ratings, depending on the car, fell from 1 mpg to 6 mpg. Most saw combined city-highway efficiency drop by 1 or 2 mpg. Vehicles included the Hyundai Accent, Elantra, Veloster and Santa Fe; and Kia Rio and Soul.
"This will send a strong message that cheating is not profitable — and that any company that violates the law will be held to account," Holder said.
Hyundai was forced to abandon claims that four models in 2012 had gotten 40 mpg.
McCarthy told reporters that Hyundai and Kia's conduct was unfair and illegal. "That tilts the market in favor of those who don't play by the rules," McCarthy said.
Rival automakers said they believed the overstatement cost them sales.
In total, the restatement has cost the Korean automakers more than $750 million, including the $395 million settlement to owners of vehicles. Still, it is a fraction of Hyundai $8.4 billion in worldwide profits in 2013.
It recently spent $10 billion to acquire land in Seoul for a new headquarters.
Hyundai and Kia have agreed to reorganize their emissions certification group, revise testing, better manage test data and enhance employee training before certifying their 2017 vehicles. In the meantime, Hyundai and Kia must audit fleets for model years 2015 and 2016.
"Hyundai has acted transparently, reimbursed affected customers and fully cooperated with the EPA throughout the course of its investigation," said David Zuchowski, president and CEO of Hyundai Motor America, in a statement. "We are pleased to put this behind us, and gratified that even with our adjusted fuel economy ratings, Hyundai continues to lead the automotive industry in fuel efficiency and environmental performance."
Hyundai, which is paying a $56.8 million civil penalty, will forgo the use of approximately 2.7 million greenhouse gas emission credits — the credits representing the difference between original and restated emission data, which are valued at about $45 each.
Ford has had two significant restatements of mileage and sent checks to thousands.
In August 2013, Ford dropped mileage for the 2013 C-Max hybrid from a combined 47 mpg to 43 mpg. In June, it lowered mileage ratings on six cars, including combined city/highway rating on the Lincoln MKZ hybrid by 7 mpg.
"When Ford identified an error with fuel economy ratings for certain vehicles through its internal testing, we notified EPA and worked with the agency to determine correct fuel economy ratings. We also apologized to our customers and made goodwill payments to owners of the approximately 200,000 affected U.S. vehicles," Ford spokeswoman Christin Baker said.