A One-Year Ban on Hyundai/Kia Sales

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Hyundai and car manufacturing stablemate Kia overstated the miles per gallon estimates for about 900,000 cars and light trucks they sold in the United States. The companies apologized. The question now is what the federal and state governments should do to the two companies for the transgression.

Outside possible government sanctions, the companies are likely to face class-action suits because of the overstatement. But regulators have a number of options. The best is a one-year ban on the American sale of new Hyundai and Kia vehicles. That, at least, would tell the auto industry its frequent skirting of regulations and making claims to the public that turn out not to be true finally have been taken seriously.

The specifics of the scandal are worth a review, as are the claims made by Hyundai and Kia about the trouble, as well as about their engineering prowess and cultures that are critical to how they market to consumers.

The Environmental Protection Agency audits the miles per gallon claims of auto manufacturers. Kia and Hyundai “inflated” claims, as the Associated Press described the situation. The EPA said it took the infractions seriously. Gina McCarthy, assistant administrator of the EPA’s air-quality office said:

Consumers rely on the window sticker to help make informed choices about the cars they buy. EPA’s investigation will help protect consumers and ensure a level playing field among automakers.

Hyundai said the entire matter was a terrible mistake. Sung Hwan Cho, president of Hyundai’s U.S. technical center in Michigan, said:

This is just a procedural error. It is not intended whatsoever.

One of his colleagues, Dr. W. C. Yang, chief technology officer of Hyundai/Kia research and development, made similar comments:

I sincerely apologize to all affected Hyundai and Kia customers, and I regret these errors occurred. Following up on the EPA’s audit results, we have taken immediate action to make the necessary rating changes and process corrections.

Hyundai and Kia can make incredibly complex cars and light trucks — a fact that they brag about endlessly. However, the companies do not appear to have the competence to test them.

What happens next? Hyundai and Kia will change the stickers on their cars to reflect the correct mileage estimates. They will offer modest compensation to those who bought the cars. And the companies say it is to their credit that they were not forced to do the right thing.

Chris Hosford, the Executive Director of Corporate Communications for Hyundai Motor America, told 24/7 Wall St. in a written statement that:

The decision and actions in regard to compensation for owners were taken solely by Hyundai and Kia alone. Hyundai and Kia made a voluntary decision in regard to the compensation that is being offered to owners.

But that really misses the point. Hyundai and Kia claim that, at the heart of their culture, they are at the forefront of the industry that should make the kind of mistake they made highly unlikely. Hyundai describes itself as “a thoughtful kind of car company”:

What would happen if people who were passionate about cars took the time to think about them all over again, as though for the first time? What if they cracked the entire industry wide open, peered more deeply into it, spread out all its parts, and questioned their every detail? What if they set aside the rules and vowed to discover the things that really matter about a car the things that are universally and undeniably true?

One of the things that is undeniably true is that the public relies on car companies to accurately describe their cars and how these cars work. These assurances are, like in most parts of the consumer portion of the economy, the link between buyer and seller, as well as the creators of trust.

The Hyundai and Kia mpg problems are not over for the companies. The people who bought the cars in question could bring lawsuits. State attorneys general are drawn to actions that involve inaccurate claims made by large companies that help those companies to sell products or services. The federal government may well not pursue any legal action. The manufacturers did apologize, after all.

But an apology is hardly enough. Much of the sales proposition made by Hyundai and Kia is that they made and make cars that are well-engineered to get good mileage. Among the claims the Hyundai makes is that it has:

[A]n entire team of managers and engineers who aren’t afraid to ask “Have you tried?” Because no matter how impossible it sounds, they always find a way to design a better engine.

Design a better engine, but not test it adequately?

No matter what the federal government, states attorney generals or Hyundai and Kia buyers decide to do, the companies should not get a pass. From now on, neither should any other car manufacturer that fractures the public’s trust.

A one-year ban of Kia and Hyundai sales? That is the least the federal government should do.

Douglas A. McIntyre