Hyundai Motor Co <005380.KS> and Kia Motors Corp <000270.KS> plan to recall 1.48 million vehicles in the United States, Canada and South Korea due to engine issues, the latest blow for two firms already struggling in key markets.
The recall could cost the two firms hundreds of millions of dollars each revives quality concerns at a time when Hyundai and Kia face a sharp drop in China sales and sluggish demand in the United States and South Korea. The South Korean companies are recalling 1.19 million cars and sport utility vehicles in the United States, 114,187 in Canada and 171,348 in South Korea due to the engine issue that increases the risk of a crash, according to safety regulators in those respective countries.
The U.S. recall involves Hyundai’s Sonata and Santa Fe and Kia’s Optima, Sorento and Sportage. The recall could hit earnings with the recall costing each company as much as 250 billion won ($220.19 million), said Koh Tae-bong, an analyst at Hi Investment & Securities. The companies declined to comment on the cost of the recall. Hyundai Motor shares closed down 2.4 percent, compared to a flat broader market <.KS11>. Kia Motors were down 0.9 percent.
This is not the first time Hyundai and Kia have been forced to recall vehicles due to defects in their Theta engines, which they manufacture themselves. In 2015, Hyundai Motor recalled 470,000 Sonata sedans in the United States to replace faulty engine parts, prompting quality concerns in its home market of South Korea.
But Hyundai and Kia said last year that engines produced at domestic factories were not defective. They instead extended the warranty period for five Theta 2-equipped models in South Korea. South Korea’s transport ministry said on Friday metal debris in crankshafts could cause engine damage, leading to possible loss of motive power.
The recall in South Korea covers Hyundai’s Sonata, Grandeur sedans and Kia’s K5, K7 and Sportage models equipped with a 2-liter or 2.4-liter Theta 2 gasoline engine produced before August 2013, the ministry said. “The recall is related to a manufacturing process problem, not the structural problem of Theta 2GDi engines and we have completed improvements through appropriate measures,” the companies said in a statement.
Hyundai will replace a defective engine with a new one after inspection. The recall in South Korea will start on May 22.
($1 = 1,135.4000 won)