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Fiasco for Hyundai's reputation

English.news.cn   2012-11-23 15:59:59            

by Yoo Seungki

SEOUL, Nov. 23 (Xinhua) -- Fuel efficiency was the key selling point of Hyundai Motor in the United States. The South Korea's No. 1 carmaker centered their marketing activities on touting superior mileage as strong points.

Earlier this month, the U.S. Environmental Protection Agency ( EPA) charged Hyundai and its affiliate Kia Motors with overstating fuel mileage of around 900,000 vehicles sold in the U.S. during the 2011-2013 model years. The misstated models included best- sellers such as the Hyundai Elantra and Kia Sorento.

Gas mileage of those models will be changed by one or two miles. For example, the 2011 Hyundai Elantra was rated at 29 miles per gallon (mpg) on city driving and 40 mpg on highway with a combined average of 33 mpg, but those will be relabeled into 28 mpg city, 38 mpg highway and 32 mpg combined.

The affected customers will be compensated for the losses stemming from the difference between the stated and actual fuel economy. The compensation will be made every year via debit card based on the fuel price, the actual miles driven and an extra 15 percent premium.

At a glance, the affair seemed to be settled to the satisfaction of customers. The fuel economy was misstated by a mere one or two mile, and the sufficient compensation with the 15 percent premium will be made every year.

One local media even attributed growing protectionism in the U. S. to the fuel economy scandal. The conservative Chosun Ilbo reported that many competitive South Korean manufacturers have been embroiled in various lawsuits in the U.S. amid stronger protectionism, citing around 100 lawsuits facing local companies such as Hyundai and Samsung Electronics.

Hyundai, meanwhile, said in a press release that the inflated mileage ratings "resulted from procedural errors during a process called 'coast down' testing at the companies' joint testing operations in Korea."

Aerodynamic drag, tire rolling resistance and drive-train frictional losses are simulated during the coast-down testing, the rule of which was tightened by the Ministry of Knowledge Economy following Hyundai's fuel economy scandal.

Under the stricter rule, the self-testing by Hyundai should be approved by the ministry for verification. Around 10 to 15 percent of the newly launched models will be subject to the sampling test by the ministry, which follow the testing mechanism in the U.S.

An official at the ministry told Xinhua Friday "the revision of the rule was not directly related with the Hyundai scandal," but he hinted that there was lack of transparency in the mechanism of fuel efficiency testing. The official noted that there has been persistent demand from private consumer protection groups for making public the fuel economy information.

Hyundai admitted that it inflated gas mileage of cars sold in the U.S., but it gave an excuse of procedural errors without commenting on whether there was lack of transparency in the testing process and how it will prevent the similar scandal from happening again. Without it, similar scandals by Hyundai can happen elsewhere like in Seoul and Beijing.

While rapidly expanding its market share in the U.S., Hyundai touted its superior fuel efficiency as strong points. The carmaker might have fallen into temptation of overstating the mileage amid higher oil prices.

A U.S. media reported that the downgraded fuel efficiency for Hyundai vehicles was still nowhere near the figures under the real- world driving conditions, citing various Hyundai car owners.

The lackluster reaction to prevent recurrences of similar cases would do additional damages to the already-hurt reputation for Hyundai's brand equity. Hyundai needs to prevent the scandal from becoming a fiasco for Hyundai reputation.

"The impact on the brand recognition and sales performance in North America would be more material, given that high fuel efficiency has been one of the key selling points and the affected region is the group's largest market," said Chris Park, a senior credit officer at Moody's in Hong Kong.

"Restoring a loss of credibility in the companies' claims of better fuel economy than their competitors, which we consider a key driver of their improved business performance amid a climate of higher oil prices and a weak global economy, will take some time," said Han Sangyun, an analyst at Standard & Poor's in Hong Kong.

Editor: Hou Qiang
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