Share prices of South Korea’s two biggest automakers, Hyundai Motor Co and affiliate Kia Motors Corp fell down drastically on Tuesday by as much as 6%, after being warned of another $2.9 billion charges related to engine issues.
This brings their total quality-related costs of a combined 3.36 trillion won ($2.95 billion) related to the years-long quality problem, tarnishing the automakers’ credibilities to nearly $5 billion.
Engine Related Issues
In a class-action lawsuit filed in the US District Court for the Central District of California by law firm Hagens Berman in December 2018, over 350 complaints from consumers were reported to the US National Highway Traffic Safety Administration.
These complaints were about engine failures resulting in non-collision fires in Hyundai and Kia vehicles.
In fact, the automakers recalled about 1.7 million vehicles in 2015 and 2017 from the U.S.
In Q3 of 2019, Hyundai paid a one-time charge of about 600 billion won, while Kia paid off about 310 billion won.
Additionally, as reported by Reuters, the two firms have designated about 2.04 trillion, from 2017 to 2019 due to engine-related issues.
The ‘Tarnishing’ 3.36 Trillion Won Hit
Now, the two automakers are warned of another 3.36 trillion won ($2.9 billion), in the same engine costs 2019 settlement case.
Reportedly, Hyundai Motor is setting aside 2.1 trillion won, while Kia Motors Corp is setting aside 1.26 trillion won, in their Q3 earnings.
Last year, as a part of the settlement, the two automakers extended to provide a lifetime warranty on the engines in the US and South Korea.
They are also setting aside funds to cover additional expenses that could arise from the lifetime warranties.
Q3 Looks Bad for the 2 Automakers
Hyundai Motor Group said on Monday that the quality-related costs of a total 3.36 trillion won would surely impact the automakers’ third-quarter earnings.
Before yesterday’s announcement, the average net income for Hyundai Motor was estimated to be 890 billion won, while that of Kia was at 490 billion won, as compiled by Bloomberg.
However, post Monday, today (Tuesday) shares of Hyundai and Kia were down 3.3% and 3.4%, respectively.
The two automakers are expected to release their detailed earnings reports next Monday, on Oct 26.