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17 May 2014, NYT: G.M. Is Fined Over Safety and Called a Lawbreaker

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http://www.nytimes.com/2014/11/04/us/politics/us-fines-korean-automakers-for-misstating-mileage.html

NOV. 3, 2014

U.S. Fines Automakers Hyundai and Kia for Misstating Mileage

By CORAL DAVENPORT and BILL VLASIC

WASHINGTON -- In the largest-ever penalty for a violation of the Clean Air Act, the Korean automakers Hyundai Motor and Kia Motors will pay the federal government a combined $300 million as part of a settlement for overstating vehicle fuel-economy standards on 1.2 million cars, Justice Department and Environmental Protection Agency officials said on Monday.

The action, announced by Attorney General Eric H. Holder Jr. and Gina McCarthy, the E.P.A. administrator, is part of a broader, more aggressive enforcement effort by federal regulators on the auto industry. Analysts said it was meant to send a clear message to automakers that they would be harshly treated for compromising federal rules.

"This type of conduct quite simply will not be tolerated," Mr. Holder said at a joint news conference at the Justice Department with Ms. McCarthy. The Justice Department, he added, "will never rest or waver in our determination to take action against any company that engages in such activities."

The settlement also signaled that the Obama administration intended to aggressively enforce new climate-change regulations. "Businesses that play by the rules shouldn't have to compete with those breaking the law," Ms. McCarthy said.

Under the agreement, the automakers will pay $100 million in fines and forfeit an estimated $200 million in greenhouse-gas emissions credits, which auto companies earn by building vehicles with lower emissions than are required by law. The E.P.A. said the fuel efficiency standards reported by Hyundai and Kia were off by one to six miles per gallon.

For years Hyundai and Kia built their brands around the idea that their cars got better mileage than their competitors, a claim they promoted in ads that denigrated less efficient rivals.

But in 2012, Hyundai and Kia, which are both owned by the Hyundai Motor Group, acknowledged that they had overstated the fuel economy of vehicles sold in the United States over the previous two years. The admission came after an E.P.A. investigation into consumer complaints that their cars were underperforming the official mileage estimates on the window stickers of new cars. Although few drivers achieve the mileage claimed on the stickers, the government requires automakers to conduct standardized tests to calculate the figures so that buyers can more easily compare the fuel efficiency of different models.

At the time, both Hyundai and Kia apologized for what they called "procedural errors" in testing that resulted in incorrect mileage stickers on some of their most popular models, including the Hyundai Elantra and Kia Rio. On Monday, the companies continued to say that the misstatement of fuel mileage was inadvertent and that they did not intentionally mislead customers.

"Hyundai has acted transparently, reimbursed affected customers and fully cooperated with the E.P.A. throughout the course of its investigation," David L. Zuchowski, president and chief executive officer of Hyundai Motor America, said in a statement. "We are pleased to put this behind us, and gratified that even with our adjusted fuel economy ratings, Hyundai continues to lead the automotive industry in fuel efficiency and environmental performance."

Although Hyundai cars are competitive with other manufacturers on fuel economy, they do not lead the pack in any category.

The settlement comes as the Obama administration has used the Clean Air Act to create and enforce new regulations aimed at reining in planet-warming pollution. In 2009, the E.P.A. released new fuel economy standards requiring automakers to aggressively increase the average fuel mileage of passenger vehicles in order to cut carbon emissions from tailpipes. President Obama has also proposed major E.P.A. regulations curbing emissions from coal-fired power plants.

"This is the first enforcement action we've seen on greenhouse gas regulations, and they came out of the gate with the largest settlement in the history of the Clean Air Act," said Roger R. Martella Jr., an E.P.A. general counsel during the George W. Bush administration. "This is the first window we've seen into how they'll approach the enforcement of greenhouse gas regulations."

Mr. Holder said that by inaccurately labeling their vehicles, the auto companies allowed the additional emission of 4.75 million tons of carbon pollution -- or, by the E.P.A.'s calculations, the equivalent of the emissions produced by power plants generating electricity for 433,000 homes for a year.

"Any company that misrepresents the performance of their test vehicles risks harming human health and the environment, either by causing more pollution than the law allows, or, as happened in this case, by claiming greenhouse gas emission credits they did not earn," Mr. Holder said.

Environmentalists on Monday praised the penalties on the two automakers.

"For many years, E.P.A. has enforced the Clean Air Act to make sure cars are as clean as they are advertised," said Frank O'Donnell, president of the group Clean Air Watch. "It is very encouraging to see that E.P.A. plans to make sure that climate-related emissions must also be as advertised."

E.P.A. officials said problems with fuel economy standards in Hyundai and Kia vehicles were apparent in an audit. They concluded that the Korean automakers' testing of fuel economy technologies included procedures that led to inaccurate fuel-economy ratings for vehicles including Hyundai's Accent, Elantra, Veloster and Santa Fe vehicles and Kia's Rio and Soul vehicles.

That testing was done entirely in laboratories in Korea, government officials said. As part of the settlement, the companies must build a separate, American-based center for testing vehicle fuel economy.

Analysts said they expected to see more enforcement actions like the one on Monday. "The government is basically saying there's no excuse for doing something wrong when it comes to regulations, whether it's fuel economy or safety," said David E. Cole, chairman emeritus of the Center for Automotive Research in Ann Arbor, Mich. Mr. Cole said that some automakers had long "played internal games" to increase fuel-economy figures for various models and then used the inflated mileage figures in their advertising campaigns.

Earlier this year, the Transportation Department levied its maximum fine [1] of $35 million on General Motors for failing to report defective ignition switches in millions of the company's cars.

Coral Davenport reported from Washington and Bill Vlasic from Detroit.

[1] http://www.nytimes.com/2014/05/17/business/us-fines-general-motors-35-million-for-lapses-on-ignition-switch-defect.html