The total hit to Hyundai Motor and affiliate Kia Motors because of the quality issue that has been going on for years now, which has also tarnished its image and credibility, has now touched almost $5 billion as the copany now has issued a warning of another $2.9 billion of provisions related to engine issues.
The quality related costs of a combined 3.36 trillion won ($2.94 billion) would be reflected in their third quarter earnings, Hyundai Motor Group said on Monday. Out of that amount, the hit to Hyundai was at 2.1 trillion while that of Kia was at 1.26 trillion.
In one of their biggest recalls in the United States, almost 1.7 million vehicles in 2015 and 2017 were recalled by Hyundai and Kia together. These tow companies together make up the fifth largest auto maker of the world. The vehicles were recalled because of an engine failure which can significantly increase the risk of crashes and accidents.
An investigation into whether the recalls by the companies had included enough vehicles and were done in a timely fashion was initiated by safety regulators in the United States in 2017. The investigation was based on concerns raised by a South Korean whistle blower, who is a former quality official at Hyundai, in a complaint with the US National Highway Traffic Safety Administration (NHTSA).
Investigation into whether vehicle recalls were conducted properly by Hyundai is being carried out by US prosecutors.
A series of provisions mostly to address engine-related issues were earmarked by the two auto companies from 2017 to 2019. Those provisions amounted to a total of 2.04 trillion, according to reports.
A higher than expected costs for replacement for Theta II GDI engines of old vehicles subject to recalls is reflected in the latest provisions announced by the companies. It also is reflective of the increase in complaints by consumers over the same engine and other engines which were not subject to the recalls, Hyundai said.
“Hyundai has repeatedly said it does not see any more costs related to the Theta II engine issues, and the latest recall would deal a fatal blow to Hyundai’s credibility,” Sean Kim, an analyst at Dongbu Securities said. “I am worried.”
These higher than expected provisions could result in Hyundai and Kia to reporting losses for the quarter from July to September, he expected.
Hyundai Motor closed down 2.3% and Kia Motors ended down 1%. ($1=1,141.4200 won)
(Adapted from USNews.com)