Hyundai Sued in Korea After Overstating SUV Fuel Efficiency

Hyundai Motor Co. (005380), South Korea’s largest automaker, was sued by consumers in its home market after the nation’s transport ministry said the company overstated the fuel efficiency of one of its models.

About 1,500 owners of diesel-powered Santa Fe sport-utility vehicles built between May 2012 and June 2014 filed a complaint today with the Seoul Central District Court, the third of its kind, over the mileage exaggeration, said Kim Woong, managing partner at Yeyul, the law firm representing the consumers. A court official confirmed the filing. The official asked not to be named, citing court policy.

The lawsuit against Hyundai, which is already struggling against a strong won that’s eroding profit from exports, may stain the company’s reputation at home amid intensifying competition from imported brands including Bayerische Motoren Werke AG and Volkswagen AG. (VOW) South Korea accounted for 44 percent of the Seoul-based carmaker’s revenue in 2013, according to data compiled by Bloomberg.

“It’s definitely bad news for the company,” Lee Sang Hyun, an analyst at NH Investment & Securities Co., said by phone. “Although the compensation cost is expected to be relatively small, as it only involves the Santa Fe, we can’t completely rule out the possibility that the government may decide to test and find more vehicles that fail to meet the government’s standards.”

‘Red Card’

The point of the lawsuit is to warn Hyundai that Korean consumers can sue the company if their products are unsatisfactory, Yeyul’s Kim said in an interview.

“It is essential that as many affected consumers as possible take part in this lawsuit to show not just the carmaker but the rest of the companies in Korea that you can get a red card if you mess with your customers.”

The law firm last year lost the country’s first mileage lawsuit, in which two car owners sued Hyundai. It filed a separate suit against Hyundai on behalf of three Santa Fe owners on June 24 and aims to involve as many as 10,000 affected motorists, seeking damages of 1.5 million won ($1,500) for each, Kim said.

Tests conducted by the Korea Automobile Testing & Research Institute on the diesel-powered Santa Fe, which Hyundai said would run 14.4 kilometers per liter, showed the vehicle’s combined and city mileages were 6.3 percent and 8.5 percent less than stated, respectively, South Korea’s transport ministry said on June 26. This exceeded the 5 percent error limit set by the government, the ministry said.

Ssangyong’s Korando

“Hyundai Motor thoroughly manages its fuel-economy measurement process in many ways, including conducting numerous tests at government-authorized facilities in Korea starting from almost a year before new products are launched, while also having the company’s own test equipment verified annually by an authorized government agency,” Hyundai said in an e-mailed statement before the lawsuit was filed. “We will continue our utmost efforts to improve our fuel economy technologies and maximize our customers’ satisfaction.”

Hyundai fell 1.5 percent to 224,500 won as of 11:57 a.m. in Seoul trading, compared with a 0.6 percent drop in South Korea’s benchmark Kospi index.

The transport ministry also said that Ssangyong Motor Co. (003620)’s Korando S SUV exaggerated its fuel economy and that it will begin procedures for fining the companies. Hyundai may need to pay as much as 1 billion won, the ministry said.

South Korea’s industry ministry, which until recently conducted separate mileage tests, disagreed and said the Santa Fe and the Korando S passed its tests.

Overseas carmakers are expanding their market share in South Korea, helped by lowered tariffs under free trade agreements and the growing popularity of high-performance premium vehicles.

Rising Imports

Volkswagen’s sales jumped 34 percent and Audi’s surged 39 percent in the first five months of this year, according to the Korea Automobile Importers & Distributors Association. Hyundai’s sales rose 6.1 percent in the same period, trailing the company’s full-year target of 6.4 percent growth, according to a regulatory filing and an e-mailed statement from the company.

In the U.S., Hyundai and its affiliate Kia Motors Corp. (000270) apologized for overstating the fuel economy of their vehicles in November 2012. The companies issued debit cards to buyers of about 900,000 cars and light trucks sold in the U.S. to reimburse them for higher-than-expected fuel costs.

The companies agreed to spend as much as $395 million to settle U.S. lawsuits, making payments totaling as much as $210 million to people who bought 2011 to 2013 model-year vehicles affected by the ratings.

To contact the reporter on this story: Rose Kim in Seoul at rkim76@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net Terje Langeland, Dave McCombs

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