Hyundai-Kia, the EPA, and 100 Million Reasons to Take Fuel Economy Seriously

, , senior vehicles analyst | November 5, 2014, 5:41 pm EDT
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On Monday, the Environmental Protection Agency (EPA) announced that Hyundai and Kia would be fined $100 million for violation of the Clean Air Act. This fine stems from the two companies submitting inflated fuel economy test results to the agency for over 1 million vehicles, resulting in an under-reporting of their respective global warming emissions.

The facts of this case were known prior to when we crowned Hyundai-Kia the “Greenest Automaker” in May, so this announcement does not change our automaker rankings. However, it does have important implications for the industry as a whole.

What happened?

In 2012, the EPA noticed through its regular audits systematic deviations for a large number of Hyundai-Kia vehicles, ranging from 1-6 mpg in “real world” fuel economy.  There were a number of reasons for these deviations, stemming from improper test procedures, most of which involved “road load testing”, which determines how much energy is necessary to overcome friction and aerodynamic drag to move a vehicle down the road.

These tests are a critical component of the dynamometer testing used by the EPA. Examples of procedural errors include cases of reporting only the “best” results instead of an “average”; using data taken with a tailwind without a similar test with a headwind to compensate; and using tires with less wear, which thus have less rolling resistance.

Red 2012 Kia Soul

The 2012-2013 Kia Soul was one of thirteen Hyundai and Kia models to receive downward adjustments to their fuel economy labels, leading to a $100 million fine from the EPA, the largest ever under the Clean Air Act.

EPA immediately required adjustments to the fuel economy labels for these vehicles, which amounted to 1.2 million vehicles from model years 2011-2013, a significant fraction of Hyundai-Kia’s sales. In 2013, Hyundai and Kia settled with consumers, compensating them for unrealized fuel savings amounting to hundreds of dollars per vehicle over its lifetime.

The latest announcement finalizes the EPA’s civil penalty for these improprieties, to the tune of $100 million. Additionally, it requires the manufacturers to revise test protocols, reorganize their test and certification team and process, provide additional employee training, and require independent auditing of the tests of their vehicles, all of which the EPA estimates will cost an additional $50 million. Finally, the EPA has reduced the greenhouse gas credits of the manufacturers to reflect the actual emissions of these vehicles, resulting in a fleetwide increase of 4.75 million metric tons of carbon dioxide-equivalent emissions—these credits are estimated by the EPA to be worth about $200 million under the banking and trading provisions of the fuel economy and greenhouse gas emission standards.

What does it mean for UCS?

In short, this ddoesn’tchange anything. When I did the analysis for the Automaker Rankings, I was well aware of the underreporting that led to this fine and considered this in my analysis. In fact, I also considered that since (at the time) the investigation was ongoing that there could be even further reductions in fuel economy (there weren’t)—even under these extreme scenarios, Hyundai-Kia was the clear #1 in our rankings. Thus, as when we released the report, we can clearly state that Hyundai-Kia is the 2014 Greenest Automaker based on the on-road smog forming and global warming emissions of its fleet.

What does it mean for the industry?

One of the recurring questions I’ve been asked since the news broke is, “Is this penalty enough?” That’s ultimately a tough question to answer. The $100 million fine is the largest ever for Clean Air Act violations, but in the end it amounts to less than $100 per vehicle, which is less than Hyundai and Kia will pay out to its customers to compensate them for unrealized fuel savings. All I can hope is that the process itself and the scrutiny received by Hyundai and Kia in addition to the fine is enough of a deterrent for them and other automakers moving forward, to ensure that all protocols are followed and the data accurate.

What does it mean for consumers?

Fuel economy ranks as the most important criteria for consumers. Unfortunately, adjustments to the fuel economy labels undermine faith consumers have in what is still the single best data point by which to estimate a vehicle’s fuel usage. It reinforces the point I made in an earlier blog about how critical it is that the EPA remain vigilant in its audits to ensure that the fuel economy labels reflect vehicles’ real world performance as accurately as possible. With the host of engineering expertise automakers are drawing upon to fuel a drive towards more efficient vehicles, it would be a shame to taint the strong technical efforts with a cloud of uncertainty.

One of the things that has struck me most about this situation is the simple fact that after all the adjustments, our analysis still shows that Hyundai-Kia has the most efficient fleet of any major automaker. If Hyundai-Kia had simply appropriately represented their vehicles to their consumers, they would not have to go down in infamy with the largest Clean Air Act fine to-date, nor shell out the million dollars in penalties; they would not have to apologize to their customers for misleading them with exaggerated fuel economy numbers; they would not have to compensate for unachieved fuel savings and deal with the skepticism that will almost certainly follow; and instead they could sit back and relax, knowing that they produce the most efficient fleet on the road and are well-poised to meet the increasingly efficient fuel economy and greenhouse gas standards.

I can only hope on behalf of all consumers that all automakers have learned from this whole debacle.

Posted in: Vehicles

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