Report: Engine Issues Will Cost Hyundai and Kia $2 Billion In Q3

Matt Posky
by Matt Posky

Hyundai Motor Group's Theta II GDI engines are costing the company a fortune, with the company recently acknowledging the troubled powertrain will leave the manufacturer $2 billion leaner for the third quarter of 2022 alone. While that hit will be split between Hyundai and Kia brands, it still represents a healthy slice of their quarterly revenue.

Kia accounts for 1.54 trillion won, whereas Hyundai accounted for 1.36 trillion won – both of which pertain exclusively to financial hardships endured between July and September of 2022.

"We sincerely apologize for repeated quality issues and additional costs related to the Theta II GDI engine recall," Cha Seong-ju, head of the quality division at Hyundai Motor Group, told the press earlier this week. “We will put our utmost efforts to secure engine quality… and manage quality related costs in order to prevent a repetition of quality issues.”

Despite having made serious headway Korean brands are facing an uphill PR battle following sustained gripes about gasoline direct injection Theta II motors that have been accused of being defective. Complaints include premature rod knocking, excessive oil consumption, contaminated fluids, and even full-blown seizures if the problem goes unaddressed. This led to a 2016 class-action lawsuit made on behalf of owners of the 2011-2014 Kia Optima, 2011-2014 Kia Sportage, and 2012-2014 Kia Sorento.

In September 2015, Hyundai also recalled about 470,000 model-year 2011-2012 Sonatas equipped with 2.0-liter and 2.4-liter Theta II engines. At the time, Hyundai explained to the NHTSA that manufacturing problems left metallic debris around the engine crankshaft, causing problems with oil flow, and suggested that the deburring process would be improved. But things only got worse and the Department of Transportation began to see fire reports in subsequent years, leading to even more class-action lawsuits and an expanding engine recall for the automaker to contend with.

Hyundai Motor Group has already spent billions trying to address these problems and has extended the warranty on select vehicles to 10 years or 120,000 miles. The duo then offered an unprecedented lifetime engine warranty as part of efforts to improve their tarnished image. It was undoubtedly the right thing to do and probably did a lot to help the companies maintain the momentum they had been building against rival automakers. But it’s also backfired for the company somewhat.

In a report from Reuters, Korea Investment & Securities analyst Kim Jin-woo said the provisions – unlike a standard recall – were unlikely to have a major impact on the firms' brand value and credibility and described the cost as "reasonable" given it factored in the post-COVID trading environment. However, Hyundai Motor Group has cited those provisions as contributing to the financial hit it’s taking because more U.S. consumers have decided to drive their older cars, rather than buy a new one.

That’s pretty tone-deaf, especially considering that most individuals would probably love to buy a new vehicle rather than have a broken one fixed by the manufacturer via recalls. But there’s mounting evidence that regular consumers just don’t have the money in the current economy. Based on data from S&P Global Mobility, the average age of a U.S. passenger vehicle is now 13.1 years. That’s a sizable increase from the 12.4-year average witnessed in 2020 and absolutely massive compared to the pre-pandemic average of 11.8 years.

The South Korean auto group said it has also factored in the recent weakening of the won against the U.S. dollar, leading to additional costs. Hyundai said it would expand on the issue in its report, scheduled to drop next week and Kia's quarterly report should follow.

[Image: Papin Lab/Shutterstock]

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Matt Posky
Matt Posky

A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.

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3 of 13 comments
  • DenverMike DenverMike on Oct 20, 2022

    Hyundai was the smart think alternative to the typical 50K miles death trap with a carburetor and points.

  • Randy Mertens Randy Mertens on Oct 20, 2022

    I just visited my local Chevy dealer. Lots of pickups and large SUVs in inventory, but no smaller cars.

    This seems to be the case at other dealerships where you can get the more expensive vehicles, but no compacts or midsize cars. Those you have to order.

    I suspect this may become a permanent deal -- inventory high profit models but make people order the low profit ones. This will have the additional effect of steering people into more expensive vehicles.

    • DenverMike DenverMike on Oct 20, 2022

      I hate when they do that, try to maximize their profits. Their should be nonprofit automakers, oh yeah that’s been tried. This time with EVs only and backed by tax dollars. Oh yeah that’ll likely happen anyway.

  • Daniel J Until we get a significant charging infrastructure and change times get under 10 minutes, yes
  • Mike I own 2 gm 6.2 vehicles. They are great. I do buy alot of gas. However, I would not want the same vehicles if they were v6's. Jusy my opinion. I believe that manufacturers need to offer engine options for the customer. The market will speak on what the consumer wants.For example, I dont see the issue with offering a silverado with 4cyl , 6 cyl, 5.3 v8, 6.2 v8, diesel options. The manufacturer will charge accordingly.
  • Mike What percentage of people who buy plug in hybrids stop charging them daily after a few months? Also, what portion of the phev sales are due to the fact that the incentives made them a cheaper lease than the gas only model? (Im thinking of the wrangler 4xe). I wish there was a way to dig into the numbers deeper.
  • CEastwood If it wasn't for the senior property tax freeze in NJ I might complain about this raising my property taxes since most of that tax goes to the schools . I'm not totally against EVs , but since I don't drive huge miles and like to maintain my own vehicles they are not practical especially since I keep a new vehicle long term and nobody has of yet run into the cost of replacing the battery on an EV .
  • Aquaticko Problem with PHEV is that, like EVs, they still require a behavioral change over ICE/HEV cars to be worth their expense and abate emissions (whichever is your goal). Studies in the past have shown that a lot of PHEV drivers don't regularly plug-in, meaning they're just less-efficient HEVs.I'm left to wonder how big a battery a regular HEV could have without needing to be a PHEV.