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Hyundai, Kia fuel debacle: Was it gross misrepresentation or error?

Published February 12, 2013

Well, it looks like it’s time for Episode #1,847 of the ongoing saga: Hyundai, Kia and A Song of Incorrectly Stated Fuel Economy Estimates. This gripping drama tells the story of a heroic/opportunistic group of consumer advocates, who are suing the dastardly/unfortunate automakers for deliberately/accidentally overestimating the mileage ratings on about one-third of the vehicles they’ve sold over the past two years.

In a miserly/generous move, Hyundai and Kia volunteered to reimburse owners for the cost of the extra fuel, but the consumer group courageously/greedily insists that this is insufficient recompense, and is pursuing the suits. They’ve just filed a petition asking the federal courts to consolidate the 33 cases in Southern California, where the companies are based and where most of the lawsuits were filed.

What to make of this? A lot depends on how this overstatement came about. Consumer Watchdog says that Hyundai deliberately misled their customers. If they have evidence to prove that, though, they must be saving it for the trial. The mileage measurements are done in a laboratory and are not straightforward readings – the results have to be interpreted based on the presence and interaction of a large number of variables (temperature, speed, tire pressure, and wind direction, to name a few). There’s definitely room for error in how the results are interpreted and even more room for variation in how a vehicle will actually perform on the road. So it’s very possible that this was not an intentional rigging of the mileage results, but a genuine error.

More: Hyundai, Kia to reimburse buyers after overstating mileage claims

More: How Hyundai made its fuel economy error

Further, it’s not only possible but likely that Hyundai and Kia will lose a great deal of money as a result of this gross misrepresentation/unfortunate error. The cost of compensating buyers for additional fuel alone – between the actual reimbursement to buyers and the cost of administering the reimbursement program – may come to as much as $100 million. That doesn’t even include losses from decreases in stock price, lost sales, and general damage to the brand. So you might argue that they’ve been punished enough.

You might also say, however, that punishing Hyundai and Kia isn’t really the issue. The point is to recompense thousands of buyers who paid for one thing and got another. Hyundai and Kia have been patting themselves on the back pretty hard for their voluntary offer of fuel debit cards, but it’s actually a relatively small gesture that, arguably, doesn’t go nearly far enough to compensate buyers for Hyundai/Kia’s mistake. The cars’ high mileage ratings certainly inflated their MSRP, reflecting not only the increased value buyers expected to receive from a more fuel-efficient car but also a higher expected resale value.

In other words, if you bought one of these cars, you now own a less valuable asset than you paid for, and Hyundai/Kia made money selling it to you.

So you can see why the automakers’ offer to defray fuel costs, based on their own internal calculations, strikes some consumers as a bit thin. At the very least, H/K should submit to independent, transparent arbitration of how much fuel they should be paying for – and this arbitration could also determine whether H/K owes buyers for the difference between the price and the actual asset value of the cars.

That would get at the true heart of this issue, which is: automakers, and industry in general, fight with everything they have to stave off government regulation. They’re allowed to run their own mileage tests internally, with nominal oversight from the EPA. The general rationale for this level of industry freedom from regulation is that the market will govern industry’s behavior: if companies don’t effectively regulate themselves, the market will punish them or consumers will punish them through the courts. I’m not personally a big fan of this approach; seems to me there are some things we can regulate without waiting for anyone to lose an appendage. But there’s no denying that this is exactly what’s happening to Hyundai and Kia. Welcome home, chickens, make yourselves comfortable.

The fact that Hyundai and Kia offered their measly gas cards without requiring that recipients waive their right to sue suggests that they recognize these chickens all too well. They are taking the bet that they can make this minimalist response entirely on their own terms, and deal with whatever lawsuits may result, at less cost than if they responded more comprehensively.

If automakers don’t like being so exposed to litigation over their mileage ratings, they should allow the EPA to do the testing for them. That would absolve them from accountability for the resulting estimates. But it would also, of course, prevent them from producing the most favorable rating possible. Automakers have most likely calculated that this loss of control would prove more costly than retaining control of the testing and dealing with the fallout if they’re discovered to have done it wrong.

Those calculations may well be right. As long as they also factored in the cost of chicken feed.

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