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