* Mileage estimates misstated for over 1 mln cars
* Reputation hurt as the automakers had touted fuel economy
* Investors worry about brand, sales, costs and lawsuits
* Shares for both automakers fall 7 pct
(Adds Hyundai comments, background)
By Hyunjoo Jin
SEOUL, Nov 5 (Reuters) – Hyundai Motor Co’s and
Kia Motors Corp’s admission that they overstated the
fuel economy of some cars has tainted their reputations, and
brand loyalty will be tested in the months ahead after a decade
of unbroken success in the United States.
Shares in the South Korean car makers, which had touted
superior fuel efficiency in recent marketing campaigns, tumbled
some 7 percent on Monday, as investors fretted about the impact
on their brands and sales in the all-important North American
market. Hyundai alone lost $3.1 billion in market value.
The setback poses a major challenge for Hyundai Chairman
Chung Mong-koo who has led a more than doubling of its U.S.
sales over the past decade on improved quality and is now
focusing on lifting the company’s brand image.
High among investor concerns were the cost of compensating
customers of the more than one million vehicles affected, as
well as the potential for class-action lawsuits in the United
States and similar complaints in other countries.
For some analysts, the news was potentially dire.
“This could be a game-changing event in Hyundai’s success
story,” said James Yoon, an analyst at BNP Paribas, said in a
report. “We think the potential financial loss is immaterial
compared to the potential reputation loss of brand equity.”
But others noted that unlike damaging recall scandals that
had affected rivals Toyota Motor Corp and Ford Motor Co
, Hyundai and affiliate Kia had been quick to admit to
mistakes and announce a compensation plan.
“Those were more serious issues related to safety… Thus
the impact on brand-value and U.S. sales may be smaller than
those of competitors,” Citi analyst Ethan Kim said in a note on
Monday, adding that investors would have to wait until November
and December sales figures to gauge the impact.
Hyundai said in a statement on Monday that its mistakes only
affected vehicles sold in North America.
“All Hyundai cars sold in other regions of the world have
been properly certified with correct fuel economy ratings by
each respective certification agency,” it said.
Hyundai shares posted their lowest close in over a year,
ending down 7.2 percent, its biggest daily percentage drop in
nearly 14 months. Kia shares slumped 6.9 percent while the
broader market declined 0.6 percent.
NOT SO FUEL EFFICIENT
The U.S. Environmental Protection Agency (EPA) found the
automakers had overstated mileage for 13 Kia and Hyundai models
from the 2011 to 2013 model years.
Hyundai and Kia said on Friday the errors stemmed from
procedural differences in their mileage tests compared to the
EPA tests. The automakers will reimburse current owners for
extra fuel costs and issued a full-page newspaper ad on Sunday
to apologise.
Mileage labels on most vehicles will now be lowered by one
to two miles per gallon (mpg), and the largest adjustment will
be six mpg highway for the Kia Soul, the EPA said.
Analysts said the EPA finding could lead to tens of millions
of dollars in compensation, adding that new lawsuits could not
be ruled out.
The EPA findings were triggered by consumer complaints,
including a class-action suit accusing Hyundai of misleading
consumers sensitive to high gas prices that its popular 2011 and
2012 Elantra model was more fuel efficient than it actually was.
In its marketing, Hyundai has touted that many of its models
get 40 mpg on the highway. In the “Save the Asterisks” campaign,
Hyundai poked fun at rivals who offered 40 mpg only on
specialized, low-volume models.
Now three Hyundai models, the Elantra, Accent and Veloster,
as well as the Kia Rio fall short of that mark as will the
Hyundai Sonata and Kia Optima hybrids.
Hyundai has, however, come back from serious problems
before.
Back in the late 1990s, Hyundai suffered from major quality
problems, selling just four models totalling 90,000 units a year
in the U.S. market.
But it shifted its focus to improving quality and introduced
a 10-year/100,000 mile warranty programme. That programme and
incremental steps forward in style and quality, helped revive
sales and last year, sales had grown seven-fold to 646,000 cars,
giving it its best-ever market share of 5.1 percent.
Offering low priced vehicles and improved quality and style,
Hyundai and Kia were also the only car makers that increased
U.S. sales during the 2009 global financial crisis.
($1 = 1090.8750 Korean won)
(Editing by Eric Meijer and Edwina Gibbs)
