Hyundai and Kia motor companies will pay as much as $350 million for overstating the fuel efficiency of their cars, as the Obama administration struck the biggest blow yet in its effort to enforce the regulations central to its strategy for combatting climate change.
The Justice Department and the EPA on Monday announced that the two Korean automakers—both part of the Hyundai Motor Group—had agreed to pay a $100 million fine and forfeit another $200 million in emissions credits in the largest civil penalty ever levied under the Clean Air Act. The total cost to the companies could reach $350 million, EPA Administrator Gina McCarthy told reporters at a press conference.
McCarthy and Attorney General Eric Holder touted the settlement as unprecedented and said it should serve as a warning to companies both in the auto and power sectors that the administration could deliver on the far-reaching regulatory scheme it has implemented over the last six years to reduce toxic greenhouse gas emissions.
"This will send a strong message that cheating is not profitable and any company that violates the law will be held to account," Holder said. "This announcement illustrates that this type of conduct quite simply will not be tolerated."
Regulators and the Justice Department had alleged that because of a "systemically flawed" testing program, the companies had sold more than 1.2 million cars in 2012 and 2013 that were inaccurately certified as meeting the administration's rules for minimum fuel efficiency standards. The companies overstated the data by about 1-2 miles per gallon. "Effectively, there was no valid certification of those cars," said Sam Hirsch, the acting chief of the Justice Department's environmental division. The cars will remain on the road, officials said, and the companies have agreed to implement new auditing and certification measures for its 2015-2016 line of vehicles.
The administration has similar investigations in progress with other companies, but McCarthy said the Kia and Hyundai violation was "by far the most egregious case that we have identified" since the rules took effect in 2012. It also appears to be the biggest enforcement action since the Supreme Court in 2007 gave EPA the power to regulate greenhouse gas emissions under the Clean Air Act.
Holder and McCarthy said the settlement was important both from an economic and environmental perspective. The administration's aggressive regulations can only be effective if they can be enforced, and the overstatements by Kia and Hyundai misled consumers and undermined competitors.
"That’s simply not fair, and it’s also not legal," McCarthy said.
In statements, the companies indicated they simply wanted the two-year investigation to be over.
“Kia Motors is a responsible company," Kia Motor America said, "and the agreement with the U.S. Environmental Protection Agency is the result of good-faith efforts among the parties to resolve our issues. We are pleased to have this matter behind us, and our priority remains making things right for our customers through our fair and transparent reimbursement program which remains in effect and unchanged by this settlement."
David Zuchowski, president and CEO of Hyundai Motor America, voiced a similar sentiment, saying the company had "acted transparently, reimbursed affected customers and fully cooperated with the EPA throughout the course of its investigation."
Hyundai had argued that its misstatements were "an honest mistake," spokeswoman Sara Jones said Monday, and both companies faulted the EPA for having confusing regulations, which the agency has since said it would clarify.