An audit by the U.S. Environmental Protection Agency have revealed that the gas mileage advertised for 13 out of 20 cars manufactured by Hyundai and Kia in the U.S. market were overstated. Hyundai and Kia have accepted the recommendation of the EPA to lower the gas mileage advertised by one to four miles per gallon and pay all 900,000 people who bought them an average of US$100 in compensation.
The total compensation will come to $90.7 million.
Hyundai and Kia blamed the discrepancy on differences between Korea and the U.S. in testing procedures and interpretations of the results. But this is the first time that more than 10 different models made by a single automaker have been involved. The fact that gas mileage has been overstated, albeit by a small margin, will have an impact on Hyundai and Kia’s brand image and credibility in the key U.S. market.
Industry insiders say the EPA's audit reflected the increased pressure rival automakers in the U.S. feel as Hyundai and Kia rack up stellar sales records there. They apparently raised questions over the huge improvements in fuel efficiency Hyundai and Kia have claimed over the last few years to rank at the top of the industry since 2010. Recently, too, the French government asked the European Commission to monitor imports of Korean-made cars to Europe, claiming that Korean automakers are selling cars at dumping prices to boost their market share.
The only way for Hyundai and Kia to overcome the latest blow to their credibility is to keep improving the quality of their cars and develop cutting-edge technology. The finding by the EPA can be seen as a warning signal. Hyundai Motor ranked 17th, down six notches from a year ago, in the latest vehicle dependability survey by JD Powers announced last month. It also ranked 18th, down seven notches, in the new car survey for 2012 by the same U.S. consumer ratings agency.
Toyota rose to become the world's biggest automaker in 2006, only to face a major crisis after its cars experienced unintended acceleration due to stuck gas pedals, which resulted in massive recalls. Hyundai and Kia now produce over 7 million vehicles a year. That means it has become that much more challenging to manage quality, and rivals are getting restive. The Korean automakers must look beyond quantity and focus more on quality.