The Department of Justice and Environmental Protection Agency announced a settlement Monday that will cost the two car companies approximately $350 million. The financial sum includes a $100 million fine, the largest ever levied under the Clean Air Act, and about $200 million in forfeited greenhouse-gas emissions credits.
At a time when car buyers rank fuel economy as a top concern when they head to dealerships and the federal government has mandated increased efficiency, Attorney General Eric Holder said the settlement should serve as a warning to automakers not to fudge their numbers.
"This will send a strong message that cheating is not profitable," he said.
The settlement ends a federal lawsuit filed against the automakers in U.S. District Court, but it's important to note that it doesn't end a class-action lawsuit filed on behalf of consumers. A preliminary settlement in that case, based in Los Angeles, was approved last month, but final approval isn't expected until July 2015.
Officials with the EPA said the $100 million figure roughly equals the economic benefits the two companies received from exaggerating the mileage claims on the window stickers of new cars.
Fuel-efficient boasts helped Hyundai and Kia establish a strong foothold in the U.S. marketplace. Advertisements for the Hyundai Elantra stated the vehicle achieved 40 miles per gallon in highway driving, and helped the car win the prestigious North American Car Of The Year honors at the Detroit Auto Show for its 2012 model.
In July 2011, the advocacy group Consumer Watchdog began receiving complaints from consumers that the Elantra and other Hyundai models fell short of their stated mileage claims in real-world driving. The group wrote to the EPA and Hyundai, asking both to investigate.
Government officials said Kia had overstated the mileage on its popular Kia Soul crossover by 6 miles per gallon, and more than a dozen overall models were affected. On Monday, EPA administrator Gina McCarthy said the violations were "egregious." Based on the exaggerations, the EPA calculated that Hyundai and Kia had underreported the greenhouse gas emissions of their fleets by about 4.75 metric tons over the estimated lifetime of the vehicles. That figure aided in the $200 million credit forfeiture.
As part of the settlement, the agency also said the South Korean automakers have agreed to only test production vehicles and have the results vetted by an outside agency. Those procedures are outside the norm in an industry accustomed to conducting its own internal fuel-economy tests and self-reporting those numbers to the EPA.
"That procedural component is important," said Karl Brauer, senior industry analyst for Kelley Blue Book. "Now there's this additional layer of oversight that they are putting on Hyundai and Kia. It not only puts them under the microscope, but it tells others, "Get it right, or else we'll sit on top of you until you get it right.'"
And there are others. Since Hyundai and Kia re-stated the fuel economy numbers in November 2012, Ford, BMW and Mercedes-Benz have all re-stated fuel economy numbers on several vehicles. While no lawsuits have been filed, EPA officials said Monday they would neither confirm nor deny those companies remain under investigation.
For its part, Hyundai and Kia said the inflated fuel-economy numbers were the results of errors made during the coast-down portion of tests administered at a shared facility in Korea. Like Holder, others believe the automakers were cheating – gaming the system to increase sales numbers in a competitive landscape.
"Consumers deserve accurate information on emissions and fuel economy when they go to the showroom," said Luke Tonachel, senior vehicles analyst at the Natural Resources Defense Council. "This strong action by the EPA and the Department of Justice should deter other automakers from cheating and will help ensure that consumers get the accurate information they need to make informed choices.
The EPA said it only tests about 15 percent of new cars sold at its National Vehicle Fuel Economy Laboratory in Ann Arbor, Michigan. The remainder of fuel-economy data that appears on the Monroney label, or window sticker, is self-certified by manufacturers. As fuel economy increases in importance, both in terms of sales and the push for car companies to reach a 54.5 miles-per-gallon standard, some question whether it's time for the EPA to broaden its testing procedures.
"Ideally, this wouldn't be a self-certifying process, because I don't think you can rely on these big automakers to accurately test their cars or honestly report the data," said Laura Antonini, staff attorney at Santa Monica, Calif.-based Consumer Watchdog. "The better approach would be to establish a system where the car companies aren't testing the cars themselves. It's an honor system now basically, and that's not working."
Pete Bigelow is an associate editor at AOL Autos. He can be reached via email at firstname.lastname@example.org and followed on Twitter @PeterCBigelow.