Hyundai-Kia admits mpg ratings were bogus
 | Krafcik: Owners to get payments |
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Hyundai and Kia built their reputations with high-mpg vehicles in the past few years. But much of that marketing sparkle went poof last week.
The EPA forced the two companies to scale back inflated mpg ratings on 900,000 vehicles in the 2011-13 model years.
The skinbacks mean Hyundai and Kia will be forced to:
• Mollify the owners and devise an efficient method to send them refunds.
• Coach dealers to handle the customers.
• Rebuild its tarnished reputation.
• Deal with possible fines from regulators and lawsuits from customers.
And Hyundai-Kia's much-trumpeted claim of 40-mpg vehicles -- a prominent part of its recent new-model introductions and the current Holy Grail of mpg marketing -- comes to a screeching halt. All six Hyundai and Kia nameplates previously rated at 40 mpg now fall below that figure.
The Hyundai-Kia announcement came after an investigation by the EPA, which found discrepancies between its test results and figures used by Hyundai-Kia.
Hyundai Motor America CEO John Krafcik said the problem resulted from "procedural errors" in company tests.
Revisions by Hyundai-Kia will lower the combined fuel economy ratings for most of Hyundai and Kia's affected vehicles by 1 to 2 mpg.
And dealers will be on the frontline of company efforts to placate Hyundai-Kia owners.
Under Hyundai's and Kia's proposed remedy, owners with mislabeled vehicles will bring them to dealerships for odometer checks. Dealers will forward the readings to the automaker, which will reimburse owners with debit cards for the extra gasoline they purchased.
According to the Associated Press, the EPA said its inquiry would continue and that it would not comment on the potential for fines or a criminal investigation of the matter.
In the conference call on Friday, Hyundai and Kia executives apologized and acknowledged the inaccuracies. "We are extremely sorry about these errors," Krafcik said.
On Friday, some dealers were already seeking to make the best of the situation.
"Anytime I have a customer that I get involved with, it gives me an opportunity to shine," said dealer Greg Mauro, president of Gregory Hyundai in Highland Park, Ill.
Mauro said he doubted that the black eye would linger. He said he suspects fuel-economy estimates are misstated in both directions; he has had customers who have said their fuel economy was better than window-sticker estimates.
"I don't think it's really going to sour the brand," Mauro said.
George Glassman, owner of Glassman Automotive Group in Southfield, Mich., which sells Hyundai, Kia, Subaru and Saab, said he appreciated the tone of accountability that Hyundai and Kia executives struck last Friday.
"Hyundai-Kia are standing behind their products and standing up to the errors made," he said.
Hyundai used fuel efficiency as a pillar of its reputation-building strategy. The automaker touted the 2011 Elantra's 40-mpg rating at the 2010 Los Angeles Auto Show as an advantage over competing compacts. Hyundai said all Elantra models carried the 40-mpg highway rating while competing models such as the Chevrolet Cruze and Ford Focus achieved 40 mpg or better highway rating on special trim levels that cost extra.
"Asking folks to pay $2,000 or $3,000 more than base models for fuel economy packages? That's just not Hyundai's way of doing business," Krafcik said at Hyundai's 2011 Los Angeles Auto Show press conference.
Doubts about Hyundai's fuel economy claims began to surface in online discussion forums on consumer Web sites such as Edmunds.com as more consumers bought 40 mpg Hyundais.
Auto enthusiast publications have also tested the Elantra's fuel economy rating along with competing models, with mixed results.
The question now is whether the black eye will linger and potentially slow the hard-charging Korean brands.
Scott Fink, owner of three Hyundai dealerships in Florida and chairman of the brand's national dealership council, said, "A mistake was made, and we're not happy with it." He added: "We have the opportunity to turn this situation from a negative into a positive."
Jeremy Anwyl, vice chairman of Edmunds.com, said embarrassment will likely be the biggest fallout. Said Anwyl: "I certainly think the brand is strong enough to withstand this embarrassment."
Theresa Clift contributed to this report
Number of mislabeled vehicles: 900,000, or 35 percent of Hyundai's and Kia's combined sales of 2011-13 models through Oct. 31
Black eye: Hyundai and Kia lost all their 40-mpg highway ratings, which they had touted in national advertising and at press events. For instance, the 2011 Hyundai Elantra's highway rating fell from 40 mpg to 38 mpg.
List of vehicles with revised mpg ratings: autonews.com/hyundaikiampg
Hyundai-Kia's explanation: Human error by test engineers caused the automaker to submit bad miles per gallon estimates to the EPA.
The remedy: Owners will take mislabeled vehicles to Hyundai and Kia dealerships, which will check odometers for miles traveled. The readings will be forwarded to the automaker, which will reimburse owners, via debit cards, for the extra gasoline they purchased to travel those miles with the lower fuel economy. The automaker will add an extra 15 percent to the reimbursement amount.
Typical example provided by Hyundai-Kia: An owner who drove 15,000 miles in Florida in a car with an overstated fuel economy of 1 mpg would receive an $88 refund on a debit card.
Dealership headache: Thousands of unsold vehicles at dealerships must get new stickers.
Consumer info: hyundaimpginfo.com and kiampginfo.com
You can reach Ryan Beene at rbeene@crain.com. -- Follow Ryan on 
