South Korean automakers Hyundai and Kia have agreed to penalties totaling an estimated $350 million for inflating fuel economy claims on 1.2 million vehicles, the Environmental Protection Agency said Monday.
The penalty — the largest in Clean Air Act history — stemmed from an investigation by the EPA and the Department of Justice. In a settlement, the automakers agreed to pay a $100-million fine, forfeit environmental credits estimated to be worth $200 million and spend another $50 million on reforms to prevent future violations.
The inflated ratings resulted in the emission of an additional 4.75 million metric tons of greenhouse gases, the agency estimated.
“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,” said EPA Administrator Gina McCarthy. “Businesses that play by the rules shouldn’t have to compete with those breaking the law.”
The stiff penalties should serve as a warning to other automakers, said Atty. Gen. Eric H. Holder Jr.
“This type of conduct quite simply will not be tolerated,” he said. “And the Justice Department will never rest or waver in our determination to take action against any company that engages in such activities.”
The California Air Resources Board was a party to the agreement and will collect about $6.3 million of the settlement.
The fine demonstrates that “the federal government is going to treat seriously any failure to meet greenhouse gas emission targets EPA sets by regulation,” said Thomas Lorenzen, a former U.S. Justice Department lawyer now with the Dorsey & Whitney law firm in Washington.
It also sends a wider message that other greenhouse gas emission targets the EPA establishes — such as those the agency has proposed for power plants — will be enforced, Lorenzen said.
Environmental groups praised the enforcement action.
“Consumers deserve accurate information on emissions and fuel economy when they go to the showroom,” said Luke Tonachel, a senior vehicles analyst at the Natural Resources Defense Council.
Much of the attention on fuel economy ratings has focused on consumer pocketbooks, said Frank O’Donnell, president of Clean Air Watch.
“It is very encouraging to see that EPA plans to make sure that climate-related emissions must also be as advertised,” he said.
Other automakers have run afoul of the EPA recently.
Last month, after auditing BMW’s tests, the EPA told the automaker to cut its fuel economy ratings for the three-door models of the Mini Cooper and the Mini Cooper S by one mile per gallon.
Other carmakers that have restated MPG ratings for various models in recent years include Ford and Mercedes-Benz.
EPA officials declined to say whether these other automakers face investigations and potential fines. But Christopher Grundler, director of the EPA’s Office of Transportation and Air Quality, said the agency is scrutinizing such cases.
The EPA has increased its audits of automaker fuel economy tests, examining up to 20% of all new models, Grundler said. It also is spending more time auditing test data submitted by car companies and the labs where the tests are conducted, he said.
“I am quite certain that automakers will be paying attention to this announcement,” he said. “They don’t want to find themselves in this same situation.”
Hyundai said it will pay $56.8 million of the $100-million civil penalty.
It will also form an independent certification test group to oversee the automaker’s fuel economy testing, training, data management and reporting. Additionally, Hyundai will continue to audit model year 2015-16 vehicles to confirm the accuracy of their fuel economy ratings.
“Hyundai has acted transparently, reimbursed affected customers and fully cooperated with the EPA throughout the course of its investigation,” said David Zuchowski, chief executive of Fountain Valley-based Hyundai Motor America. “We are pleased to put this behind us.”
Kia Motors America, the Irvine-based U.S. sales arm of the Korean brand, also issued a statement saying it was glad to have the matter resolved. It noted that consumers who purchased affected vehicles can still register for the fuel cost reimbursement program.
The inflated mpg claims were found after a 2012 audit by the EPA found the problem in a dozen vehicles, including the popular Hyundai Elantra and Santa Fe, and Kia Sorento. The EPA began investigating after consumers complained.
The companies, which are corporate siblings, blamed the inflated mileage ratings on “procedural errors” at a jointly operated test center in South Korea. Hyundai and Kia overstated the fuel economy by one to six miles per gallon, depending on the vehicle, the EPA said.
EPA investigators said the automakers chose favorable results rather than average results from a large number of tests that go into the certification of the fuel economy ratings. The ratings appear on the window stickers of cars and often in automakers’ advertising.
The South Korean automakers issued an apology and said they would give special debit cards to the vehicle owners to make up for the difference in the lower mpg logged by the vehicles.
Consumers and class-action attorneys said the debit-card system was too complicated for car owners and filed a series of lawsuits seeking damages. A settlement to that class-action lawsuit is expected to be approved by a Los Angeles federal judge next year.
“The damage to consumers is far greater than the $100-million fine announced by the government,” said Harvey Rosenfield, an attorney involved in the class-action litigation.
The proposed class-action settlement is estimated at about $400 million, but Rosenfield believes far less will be paid by Hyundai and Kia because of the complex form consumers will have to file to claim their share of the settlement.
The Hyundai vehicles with inflated fuel economy ratings are the Accent 2012-13 model years, Azera 2012-13, Elantra 2011-13, Genesis 2012-13, Santa Fe Sport 2013, Sonata Hybrid 2011-12, Tucson 2012-13 and the Veloster 2012-13
The affected Kia vehicles are the Optima Hybrid 2011-12 model years, Rio 2012-13, Sorento 2012-13, Soul 2012-13 and Sportage 2012-13.
Follow me on Twitter (@LATimesJerry), Facebook and Google+.