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

Matt Posky
by Matt Posky
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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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.

  • IH_Fever EV charger on a GM lot, probably with a Cummins generator to keep them running. A regular melting pot haha
  • Tassos Wake me up when VW (or any other loser "Legacy" automaker comes up with a "BETTER TESLA" BEV AT THE SAME PRICE. SO far, VW has FAILED MISERABLY AND LOST BILLIONS DOING IT. Its models are way underwhelming and inferior, and cost not much less than the model 3. ANd DESPITE the SCANDALOUS $7,500 tax credit, which is an INVERSE ROBIN HOOD, takes from the average household and gives it to the average BEV buying family, which has an income of $170k+, VW STILL FAILED.ALso notice the so-called "Mobility Officers" at FORD AND Renault QUIT. another HUGE SCAM, Autonomous Vehicles, they wasted 100s of billions (all idiot legacy makers together) and predicted billions of profits, but so far they DROWN IN A SEA OF RED INK with NOTHING to show for it. Morons will be morons, and the ones in this forum will cheer for their failures "AWESOME, WV, Indeed"! LOL!!!
  • Jwee More range and faster charging cannot be good news for the heavily indebted and distracted Musk.Tesla China is discounting their cars. Apart from the Model 3, no one is much buying Tesla's here in Europe. Other groups have already passed Tesla in Europe, where it was once dominant.Among manufacturers, 2021 EV sales:VW Group 25%, Stellantis at 14.5%,Tesla at 13.9%Hyundai-Kia at 11.2% Renault Group at 10.3%. Just 2 years ago, Tesla had a commanding 31.1% share of the European EV marketOuch., changed their data, so this is slightly different than last time I posted this, but same idea.
  • Varezhka Given how long the Mitsubishi USA has been in red, that's a hard one. I mean, this company has been losing money in all regions *except* SE Asia and Oceania ever since they lost the commercial division to Daimler.I think the only reason we still have the brand is A) Mitsubishi conglomerate's pride won't allow it B) US still a source of large volume for the company, even if they lose money on each one and C) it cost too much money to pull out and no one wants to take responsibility. If I was the head of Mitsubishi's North American operation and retreat was not an option, I think my best bet would be to reduce overhead by replacing all the cars with rebadged Nissans built in Tennessee and Mexico.As much as I'd like to see the return of Triton, Pajero Sport (Montero Sport to you and me), and Delica I'm sure that's more nostalgia and grass is greener thing than anything else.
  • Varezhka If there's one (small) downside to the dealer not being allowed to sell above MSRP, it's that now we get a lot of people signing up for the car with zero intention of keeping the car they bought. We end up with a lot of "lightly used" examples on sale for a huge mark-up, including those self-purchased by the dealerships themselves. I'm sure this is what we'll end up seeing with GR Corolla in Japan as well.This is also why the Land Cruiser has a 4 year waitlist in Japan (36K USD starting MSRP -> buy and immediately flip for 10, 20K more -> profit) I'm not sure if there's a good solution for this apart from setting the MSRP higher to match what the market allows, though this lottery system is probably as close as we can get.