Hyundai, Kia Reduced MPG Ratings May Hinder Resale

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About a third of the Hyundai and Kia vehicles sold in the U.S. in the past three years could face reduced resale values, some more than others.

The admission that sister auto brands Hyundai and Kia inflated gas-mileage figures could lower resale values on affected models, experts said Monday.

While Hyundai and Kia were careful to say they are compensating owners for miles driven on vehicles for which they reduced the gas mileage estimates,neither are yet addressing any depreciation impact. A Hyundai spokesman, Jim Trainor, says "the issue is top of mind with us and we will monitor it very carefully." Kia went further. Spokesman Scott McKee says: "We believe Kia vehicles will maintain resale value stability even with these (fuel economy rating) adjustments."

The Environmental Protection Agency disclosed last week that its testing showed that 900,000 Hyundai and Kia vehicles, about a third of the vehicles sold in the U.S. in the past three years, fell short of the estimated gas mileage ratings. Both automakers blamed unintentional mistakes in the testing process. The set up a system that allows owners to bring their cars into dealers for debit cards to make up the difference between the original and revised gas-mileage estimates.

But the system does not address increased depreciation due to the debacle. The Kia Soul, a sporty compact crossover, saw its combined gas mileage reduced up to 4 mpg depending the version.Although the Elantra midsize sedans' gas-mileage was reduced only one mile per gallon overall, from 33 mpg to 32 mpg, the car was advertised for its eye-popping ability to get 40 mpg in highway driving. Now its 38 mpg.

Consumers may find "residual values are lss and they paid for a product that doesn't deliver what they want," says Jamie Court, president of Consumer Watchdog, which filed a lawsuit against Hyundai over the Elantra earlier this year. "They advertised 40 mpg even when they knew no one would get 40 mpg."

In the short term, the trade-in values of Hyundai and Kia vehicles "could take a hit," says Eric Ibara, director of residual consulting for Kelley Blue Book. Though a relatively small impact, for some owners, it will be emotional — and that could hurt values. The larger issue, he says, is whether it harms the value of the twin South Korean brands.

"U.S. consumers are skeptical anyway," says Larry Smith, senior consultant to the Institute for Crisis Management, who doesn't think there will be much lasting trouble for Hyundai and Kia. He noted that Toyota saw a dip in popularity among consumers when it was going through its unintended acceleration debacle a couple of years ago, but it has recovered. "The American public can be pretty forgiving, pretty quickly."

Larry Dominique of ALG, formerly known as Automotive Lease Guide, which also estimates residual values, says he thinks the damage to Hyundai and Kia will be limited. "From an absolute dollar standpoint, not much," he says. And Elantra, only down 1 mpg, "not at all." Dominique says he has been in talks with Hyundai about how to handle the issue.

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