A federal investigation alleged Hyundai and Kia overstated the fuel economy of six late-model vehicles by 1 to 6 miles per gallon, depending on the specifications of the 1.2 million units involved. And the perceived misstep ended up costing the automakers a sum topping $350 million, one of the largest enforcement actions handed out by the Department of Justice and the U.S. Environmental Protection Agency (EPA).

On Monday, federal officials announced the historic settlement Hyundai and Kia that regulators said will resolve alleged Clean Air Act violations based on their sale of that vehicles that they believe will emit approximately 4.75 million metric tons of greenhouse gases in excess of what the automakers certified to EPA.

The automakers will pay a $100 million civil penalty, the largest in Clean Air Act history, to resolve violations concerning the testing and certification of vehicles sold in America and spend approximately $50 million on measures to prevent any future violations. 

Hyundai and Kia will also forfeit 4.75 million greenhouse gas emission credits that the companies previously claimed, which are estimated to be worth more than $200 million.  Automakers earn greenhouse gas emissions credits for building vehicles with lower emissions than required by law.  These credits can be used to offset emissions from less fuel efficient vehicle models or sold or traded to other automakers for the same purpose. 

Official estimated 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.

“This unprecedented resolution with Hyundai and Kia underscores the Justice Department’s firm commitment to safeguarding American consumers, ensuring fairness in every marketplace, protecting the environment, and relentlessly pursuing companies that make misrepresentations and violate the law,” Attorney General Eric Holder said.

“This type of conduct quite simply will not be tolerated.  And the Justice Department will never rest or waver in our determination to take action against any company that engages in such activities — whenever and wherever they are uncovered,” Holder continued.

OEM Defends Actions

The automaker indicated the settlement and adjustment affected approximately one-quarter of Hyundai vehicles from the 2011 through 2013 model years, reducing their combined city/highway fuel economy by 1 to 2 miles per gallon.

 As part of the agreement, Hyundai said will continue to implement a series of measures including the formation of an independent certification test group to oversee the automaker's fuel economy testing, training, data management and reporting.  Additionally, Hyundai will continue to audit model year 2015 and 2016 vehicles to confirm the accuracy of their fuel economy ratings.

“Hyundai has acted transparently, reimbursed affected customers and fully cooperated with the EPA throughout the course of its investigation,” said David Zuchowski, president and chief executive officer of Hyundai Motor America.  “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.”

According to the EPA Fuel Economy Trends Report, Hyundai’s adjusted fuel economy ratings now are 27.2 mpg for 2011 units, 28.3 mpg for 2012 models and 29.0 mpg for 2013 model year vehicles.

Similarly, the Union of Concerned Scientists recently named Hyundai the "Greenest Automaker" for the 2013 model year based on emissions of nitrogen oxide, non-methane organic gas and CO2.

Hyundai continues to believe its process for testing the fuel economy of its vehicles is consistent with government regulations and guidance, which afford broad latitude to vehicle manufacturers in determining test conditions. 

Outside of a data processing error related to the coast-down testing method by which Hyundai calculated resistance or "road load," OEM officials insisted it was Hyundai's regulatory interpretation within this broad latitude that was responsible for the ratings restatement.

Hyundai pointed out that it has corrected the error, and the EPA in October 2012 approved the automaker's new fuel economy testing program.

During the past 30 years, officials noted the EPA has acknowledged the variability of its coast-down testing, and currently is working to develop new guidance for the industry in order to improve its precision, repeatability and accuracy.

“Hyundai is committed to partnering with the government to innovate fuel economy testing procedures in order to achieve more accurate and reliable ‘real-world’ results for consumers,” Zuchowski said.

Industry Reaction to Penalty

Several industry observers contacted by Auto Remarketing described the impact the regulators’ actions will leave not only on Hyundai and Kia, but perhaps on other automakers, too.

“This fine represents an aggressive response by the EPA, sending a clear message to Hyundai, Kia and every other automaker regarding fuel efficiency certifications,” Kelley Blue Book senior analyst Karl Brauer said. “Beyond the large monetary payment, Hyundai and Kia are required to audit their vehicle certification process for the 2015 and 2016 model years.

“This audit involves final production cars certified by a separate team of Hyundai and Kia engineers versus the pre-production models that are typically certified by a vehicle's development team. You can be sure every automaker is aware of this fine and likely reviewing their own procedures to ensure they aren’t caught up in a similar EPA certification issue going forward,” Brauer continued.

Meanwhile, Kelley Blue Book executive editorial director Jack Nerad examined the issue from consumers’ point of view.

“My best guess is that consumers are far more upset about the misstatement by both Hyundai and Kia of expected fuel economy than they are about greenhouse gas emissions,” Nerad said. “That said, the combination of the civil fine and the cancelling of emissions credits amounts to a substantial penalty.

“It indicates that both the Environmental Protection Agency and the Justice Department are prepared to hold vehicle manufacturers accountable on the fuel economy and emissions claims they make,” he went on to say.

And while $350 million might seem like quite a figure, Edmunds.com senior green car editor John O'Dell called it “chump change,” saying Monday’s action “shows that when the people who are behind enforcement want to enforce the rules, they work.

“It's chump change for Hyundai, but it's still a significant settlement and sends a message to the rest of the industry that self-reported mileage estimates must be correct because regulators are checking,” O’Dell added.

More Details About Investigation

Officials explained the complaint was filed Monday jointly by the United States and the California Air Resources Board in the U.S. District Court for the District of Columbia.  It alleges that the automakers sold close to 1.2 million cars and SUVs from model years 2012 and 2013 whose design specifications did not conform to the specifications the companies certified to EPA, which led to the misstatements of greenhouse gas emissions.  These allegations concern the Hyundai Accent, Elantra, Veloster and Santa Fe vehicles and the Kia Rio and Soul vehicles.

Additionally, officials said Hyundai and Kia gave consumers inaccurate information about the real-world fuel economy performance of many of these vehicles.  Similarly, they understated the emissions of greenhouse gases by their fleets by approximately 4.75 million metric tons over the estimated lifetime of the vehicles.

EPA said discovered these violations in 2012 during audit testing. Subsequent investigation revealed that Hyundai’s and Kia’s testing protocol included numerous elements that led to inaccurately higher fuel economy ratings.  In processing test data, Hyundai and Kia allegedly chose favorable results rather than average results from a large number of tests.

In November 2012, Hyundai and Kia responded to the EPA’s findings by correcting the fuel economy ratings for many of their 2011, 2012 and 2013 model year vehicles and establishing a reimbursement program to compensate owners for increased fuel costs due to overstated fuel economy.

This case involves five different entities: Hyundai Motor Company, Hyundai Motor America, Kia Motors Corporation, Kia Motors America and Hyundai America Technical Center.

The California Air Resources Board joined the United States as a co-plaintiff in this settlement, and will receive $6,343,400 of the $100 million civil penalty.

“Greenhouse gas emission laws protect the public from the dangers of climate change, and today’s action reinforces EPA’s commitment to see those laws through,” EPA administrator Gina McCarthy said.  “Businesses that play by the rules shouldn’t have to compete with those breaking the law.

“This settlement upholds the integrity of the nation’s fuel economy and greenhouse gas programs and supports all Americans who want to save fuel costs and reduce their environmental impact,” McCarthy added.