South Korean automakers Hyundai Motor Co and affiliate Kia Motors Corp are to pay US$350 million in penalties to the US government for overstating fuel economy ratings in what officials said on Monday was the biggest settlement of its kind.
The deal comes on top of US$395 million the automakers agreed to pay in December last year to resolve claims from the owners of the vehicles, bringing the companies’ total cost for the mileage overstatements to more than US$700 million.
Monday’s settlement with the US Environmental Protection Agency (EPA), the US Department of Justice and the California Air Resources Board resolves an investigation of the South Korean firms’ 2012 fuel economy ratings.
The penalties were the largest ever under the US’ Clean Air Act.
“This will send an important message to automakers around the world that they must comply with the law,” US Attorney General Eric Holder said.
Under the accord, which involved the sale of 1.2 million cars and SUVs, the South Korean car firms are to pay a US$100 million penalty, spend about US$50 million to prevent future violations and forfeit emissions credits estimated to be worth more than US$200 million.
The greenhouse gas emissions that the forfeited credits would have allowed are equal to the emissions from powering more than 433,000 homes for a year, the EPA said.
“Businesses that play by the rules shouldn’t have to compete with those breaking the law,” Environmental Protection Agency Administrator Gina McCarthy said.
McCarthy said Hyundai and Kia had committed the most egregious violation of the reporting standards. She declined to say whether other violators might also be fined.
In November 2012, Hyundai and Kia conceded that they overstated fuel economy by at least a mile per gallon (0.425km per liter) on vehicles after the agency found errors for 13 Hyundai and Kia models from 2011 to last year’s model years.
Hyundai said at the time that the affected cars’ reported fuel economy would be adjusted by 1 to 2 miles per gallon.
Hyundai Motor shares fell as much as 4.4 percent in trading in Seoul yesterday, extending a slide that has dragged them to their lowest in more than four years.
The decline also knocked Hyundai from its perch as South Korea’s second-most valuable company after Samsung Electronics Co Ltd, a spot it had held since March 29, 2011.
Hyundai said on Monday that its US vehicle sales fell 7 percent last month from a year earlier, lagging the market’s 6 percent gain, with weaker sales of the Sonata sedan offsetting demand for its Santa Fe SUVs. Kia’s US shipments rose 12 percent last month.
“We are pleased to put this behind us,” Hyundai US president and chief executive David Zuchowski said.
The company added that it believes its process for testing vehicle fuel economy meets US guidelines and the overstatement was a result of a data processing error.
Hyundai’s US head at the time, John Krafcik, stepped down after his contract expired at the end of last year.
Kia said in a statement that its priority “remains making things right for our customers through our fair and transparent reimbursement program.”
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