SEOUL -- Hyundai Motor and affiliate Kia Motors said on Monday that their third-quarter earnings would reflect quality-related costs amounting to a combined 3.36 trillion won ($2.94 billion).
The costs would include additional provision expenses related to the South Korean automakers' Theta II GDI engines, the companies said in separate regulatory filings. The latest provisions reflect higher-than-expected replacement rates for the engines of old vehicles subject to recalls, as well as growing consumer complaints over the same engine and other engines not subject to recalls, Hyundai said.
Hyundai Motor said a cost of 2.1 trillion won will be reflected in its earnings, while Kia Motors flagged an earnings hit of 1.26 trillion won. They did not provide further details.
U.S. safety regulators in 2017 launched an investigation into the recall of nearly 1.7 million vehicles by Hyundai and Kia over an engine defect that increases the risk of a crash. The Theta II GDI engines involved were fitted in Hyundai Sonata and Santa Fe vehicles in the U.S., and Kia Optima, Sorento and Sportage models, all of which share the powertrain.
A South Korean whistleblower, who was a former quality official at Hyundai, reported concerns in 2016 to the U.S. National Highway Traffic Safety Administration (NHTSA), which has started probing whether their recalls covered enough vehicles and were conducted in a timely manner.
Hyundai was being investigated by U.S. prosecutors over whether vehicle recalls were conducted properly, Reuters reported in 2018.
"Hyundai has repeatedly said it does not see any more costs related to the Theta II engine issues, and the latest recall would deal a fatal blow to Hyundai's credibility," Sean Kim, an analyst at Dongbu Securities said. "I am worried."
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He said he expected Hyundai and Kia to swing to losses for the quarter from July to September, hit by the provisions.
