South Korean automaker Hyundai and its Kia subsidiary have agreed to a $350 million penalty for falsely inflating the fuel economy ratings on 1.2 million vehicles — the largest settlement ever over a U.S. clean-air violation.
The deal announced by the U.S. Environmental Protection Agency and the U.S. Department of Justice on Monday calls for the automaker to pay a $100 million fine to the U.S. government, surrender fuel economy credits valued at $200 million and spend $50 million to upgrade its testing to ensure future models are accurately rated.
Hyundai and Kia — which act as separate firms in the United States, even though they share a corporate parent and engineering in South Korea — have been negotiating with federal officials since 2012, when the EPA found the pair had overstated fuel economy ratings on its vehicles by an average of 1-2 miles per gallon, with a couple of models lowered by 6 mpg.
The EPA regulates how automakers test for fuel efficiency under the federal Clean Air Act, which in recent years has been broadened to cover greenhouse-gas emissions of carbon dioxide. The agency estimates the Hyundai-Kia vehicles will emit 1.2 million tons of CO2 more than what Hyundai and Kia certified the cars would emit when it sold them.
The fuel-economy credits come from the system used by automakers to meet ever-rising U.S. efficiency standards, which are essentially controls on greenhouse gases; surpassing the standard in one year generates credits that can be used if an automaker's average falls short in another. Automakers can also sell and trade credits — which some large companies rely on to meet federal law. The EPA estimated that the 4.75 million greenhouse-gas credits Hyundai and Kia will cancel were equal to the amount generated from powering 433,000 homes for a year.
"Businesses that play by the rules shouldn’t have to compete with those breaking the law," said EPA Administrator Gina McCarthy in a statement. "This settlement upholds the integrity of the nation’s fuel economy and greenhouse gas programs and supports all Americans who want to save fuel costs and reduce their environmental impact.”
To compensate owners of the 2011-13 model-year vehicles with inflated mileage, Hyundai and Kia offered a refillable debit card, with the value based on how many miles the owner has driven and the average price of a gallon of gas in their area. Following a class-action lawsuit, the automakers added an option for a small cash payment.
Even in its settlement today, Hyundai said the error in its tests was a matter of interpretation, one that had been generally allowed under the rules set by the EPA. While the agency tests a fraction of new vehicles every year, most automakers self-report their mileage based on EPA standards; other automakers such as Ford have been found to overstate their results as well.
"Hyundai is committed to partnering with the government to innovate fuel economy testing procedures in order to achieve more accurate and reliable 'real-world' results for consumers," said Dave Zuchowski, CEO of Hyundai Motor America.
But the EPA contends Hyundai and Kia "chose favorable results rather than average results from a large number of tests" to inflate the figures. Hyundai used those results, including a couple showing cars getting more than 40 mpg on the highway, in Super Bowl ads and elsewhere.