Hyundai and Kia’s decision to revise downward its fuel economy estimates in North America and reimburse owners for gasoline, will cost Hyundai $100 million.
Friday, November 2nd, Hyundai and Kia announced they plan to reduce fuel economy estimates on about 1.1 million vehicles sold beginning with 2010 in North America, including 900,000 vehicles in the US, in response to an Environmental Protection Agency investigation. This means that the combined Hyundai-Kia 2012 fleetwide mpg will be reduced by 3% to 26mpg from 27 mpg.
“This incident will damage their brand recognition,” Moody’s said. “However, there will be no impact on the Baa1 ratings and stable outlooks, because Moody’s believes both companies have adequate financial cushions and the impact on their competitive positions will be manageable.”
Moody’s announced that Hyundai will have to pay $100 million annually until all affected models are largely scrapped, which would be less than 1% of the automaker’s adjusted earnings. Although Hyundai said the money is not important but to make it right for its customers, the issue could still draw back the fast-growing brand.
“The damage to the companies’ brand image and their sales performance in North America is unlikely to have a profound impact on their credit profile,” said Moody’s.