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Quality cost

Hyundai, Kia to reflect $2.94 bn quality costs in Q3 results

By Oct 19, 2020 (Gmt+09:00)

2 Min read

Hyundai Motor Co. and affiliate Kia Motors Corp. said on Oct. 19 that a combined 3.36 trillion won ($2.94 billion) in quality-related costs will be reflected in their third-quarter results, dashing investor hopes for handsome quarterly profits.

Industry officials said the automotive group’s surprise move reflects new Chairman Chung Euisun’s determination to value customer satisfaction by offering top-quality products.

Hyundai, Kia to reflect .94 bn quality costs in Q3 results

Hyundai Motor will earmark 2.1 trillion won in provisional expenses related to its Theta engines, while Kia Motors will provision 1.26 trillion in such expenses, the companies said in separate regulatory filings.

“As a proactive customer protection measure, we are setting aside the amount as provisions against Theta GDI engines and other quality-related issues,” Hyundai said in its filing. “We will also make efforts to prevent the recurrence of quality defects.”

Hyundai Motor's Theta 2 gasoline engines
Hyundai Motor's Theta 2 gasoline engines

Accordingly, the two largest automakers in Korea are expected to swing to net losses in the third quarter as the massive expenses are reflected in their bottom lines.

In the third quarter of 2019, Hyundai Motor posted 460.5 billion won in net profit, boosted by robust sales of sport utility vehicles.

Hyundai Motor is set to release this year’s third-quarter results on Oct. 26.

PROBES INTO THETA ENGINES

The massive provisioning comes after the automakers set aside 920 billion won in such expenses in the third quarter of 2019 and 460 billion won in the third quarter of 2018.

“It seems that Hyundai and Kia have decided on their massive provisioning as their profitability shows signs of improving, putting behind the pandemic-caused difficulties,” said Koh Tae-bong, head of research at Korea’s HI Investment & Securities.

In 2017, US safety regulators launched an investigation into the recall of nearly 1.7 million vehicles by Hyundai Motor and Kia Motors over an engine defect that increases the risk of an accident.

A South Korean whistleblower, a former quality official at Hyundai, reported concerns in 2016 to the US National Highway Traffic Safety Administration, which began probing into whether their recalls covered enough vehicles and were conducted in a timely manner.

Last year, Hyundai Motor Group said it will offer a lifetime warranty for its Theta 2 engine following massive recalls and a US class action agreement.

Write to Il-Gue Kim and Byung-Uk Do at Black0419@hankyung.com
In-Soo Nam edited this article.
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