Hyundai, Kia Make History in Dispute Over Recall Orders

For the first time in Korea’s automotive history, two of its leading automakers are refusing to comply with huge vehicle-recall orders from a government regulator.

The matter is being reviewed in special hearings ordered by Korea’s Ministry of Land, Infrastructure and Transport, the agency that issued the orders.

The case centers on the recall of roughly 250,000 vehicles produced by Hyundai and its Kia affiliate.

The initial public hearing on the case was held May 8 by the Ministry, but with independent non-affiliated mediators conducting the session.

If the hearings conclude Hyundai and Kia must comply with the recall orders and they still refuse, the Ministry can shut down production of all of the affected vehicles until approved recall notifications have been issued by both automakers.

The case stems from information provided by a Hyundai employee whistleblower whose reports caused the Ministry to examine 32 alleged defects in the vehicles produced by the two automakers.

Of the 32 alleged vehicle defects investigated in the current case, the Ministry ordered recalls covering 10 models in March and April to remedy five defects said to endanger driver safety.

The five alleged defects involve brake vacuum lines (Hyundai Avante MD and GD); wheel lug nuts (Kia Mohave); parking-brake alert signals (Sonata, Sonata Hybrid, Genesis); engine-control canisters (Genesis, Equus); and fuel lines (Hyundai Santa Fe; Kia Sorento, Carnival).

The automakers dispute the alleged defects constitute vehicle safety hazards that endanger occupants, even though the government warns of potential fire hazards and stalling engines in two of the cases.

Hyundai and Kia’s quality images already have suffered from a recall of some 1.4 million vehicles in Korea, the U.S. and Canada that are equipped with Theta II 1.0L and 1.4L engines. Both companies took one-time hits in their first-quarter earnings for contingencies to cover the Theta II recalls. Hyundai charged roughly 200 billion won ($175 million) and Kia posted a one-time expense of 160 billion won ($140 million).

Analysts believe if the current disputed recalls are upheld, both automakers have sufficient emergency contingency cash reserves to cover all or most of the costs and special one-time charges will not be levied against second-quarter or subsequent income.

Hyundai has issued no official statements regarding the disputed recalls. The Ministry of Land, Infrastructure and Transport issued a news release May 8 reiterating the alleged defects and saying it suspected Hyundai and Kia would argue they are not significant enough to warrant full-fledged recalls and could be remedied through free repair offers that would circumvent compliance with the recall orders.

In addition to the five recalls ordered by the Ministry, it also ordered Hyundai and Kia to provide free repairs as needed by consumers for seven other alleged defects that did not warrant official recall action.