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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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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