* Customers affected will receive a debit card
* Hyundai and Kia also face legal challenges
Nov 6 Hyundai Motor Co and its
affiliate Kia Motors Corp stand to lose about $100
million because of their plan to fund fuel purchases of owners
who bought vehicles whose fuel economy was exaggerated by the
automakers, Moody's Investors Service said.
Last Friday, the two companies, both headquartered in South
Korea and under the umbrella of the Hyundai Motor Group,
admitted overstating the fuel economy ratings of some of their
vehicles by from one to six miles per gallon.
The admission came after the U.S. Environmental Protection
Agency found errors in the mileage estimates of 13 Kia and
Hyundai models from the 2011 to 2013 model years.
Hyundai and Kia have said customers will receive a debit
card to reimburse them for the differences with the EPA fuel
economy rating, based on the fuel price in their area and their
miles driven. An extra 15 percent will be added to the amount to
acknowledge the inconvenience, and owners will be able to
refresh their cards for as long as they own their vehicles, the
About 900,000 vehicles sold in the United States through
Oct. 31 were affected, and another 172,000 vehicles in Canada.
Chris Park, a Moody's senior credit officer, said North
America accounted for about 24 percent of Hyundai's global sales
in the first nine months of this year.
Moody's said that until these cars are scrapped, the cost of
buying customers' fuel will be about $100 million.
The automakers did not disclose how much the overall
reimbursement program could cost when they addressed the issue
last Friday. John Krafcik, head of Hyundai Motor America, said
only it would be "certainly millions" of dollars.
Moody's said additional expenses may be incurred by the two
automakers, but it did not give an estimate.
The Moody's report does not consider the legal challenges
facing Hyundai and Kia, including lawsuits expected to be filed
by disgruntled consumers.
One such challenge is a class action lawsuit filed this week
in the Southern District of Ohio. The suit is on behalf of three
people and seeks a jury trial to include others who bought
Hyundai or Kia vehicles.
They seek compensation for the "diminution of value" of
their vehicles as well as the right to rescind the purchase of
those vehicles, according to the 14-page complaint filed in
MARKET SHARE LOSS
Moody's also said this issue, coupled with lack of new model
launches in the near term, would mean Hyundai-Kia will lose some
of their 9.2 percent share of the U.S. new vehicle market.
While U.S. gasoline prices soared to more than $4 per gallon
in 2008 and two of the three major U.S. automakers faced
bankruptcy, Hyundai and Kia increased their share of the U.S.
Moody's said that while the Hyundai and Kia brands will be
damaged because both companies marketed vehicles based on
stellar fuel economy ratings, the issue will not affect Moody's
Baa1 rating debt for each company or its stable outlook.
The Baa1 rating is the eighth of 10 Moody's ratings
considered investment grade. It would have to fall three steps
before hitting junk bond status.
"Both companies have adequate financial cushions and the
impact on their competitive positions will be manageable"