Hyundai, Kia plan to take combined $2 billion hit for Q3

SEOUL — Hyundai Motor Co. and affiliate Kia Corp.’s said their third-quarter earnings will reflect provisions totaling a combined 2.9 trillion won ($2 billion).

The costs include provisions related to recalls of their Theta GDI engines, the South Korean automakers said Tuesday in regulatory filings.

Hyundai Motor said a provision of 1.36 trillion won would be reflected in its earnings, while Kia flagged a hit of 1.54 trillion won. The costs amount to more than half of Hyundai’s estimated third-quarter net profit and 77 percent of Kia’s profit, Refinitiv data shows.

The automakers said in a statement the provisions were needed because of recent changes, such as longer lifecycles for used vehicles and lower scrap rates caused by a chip shortage, and an underestimate of engine improvements.

Hyundai and Kia recalled nearly 1.7 million vehicles in 2015 and 2017 in one of their biggest recalls in the U.S., citing a problem with their Theta GDI engine that raised the risk of crashes.

After the recall, the duo offered an unprecedented lifetime engine warranty as part of efforts to improve their tarnished reputations.

Korea Investment & Securities analyst Kim Jin-woo said the provisions — unlike a recall — were unlikely to have a major impact on the firms’ brand value and credibility, and described the cost as “reasonable” given it factored in the post-COVID trading environment.

Cha Seong-ju, head of the quality division at Hyundai Motor Group, told analysts the auto group had also factored in the recent weakness of Korean won against U.S. dollar, leading to additional costs.

“We sincerely apologize for repeated quality issues and additional costs related to the Theta II GDI engine recall. We will put our utmost efforts to secure engine quality considering market conditions and manage quality related cost in order to prevent a repetition of quality issues,” Cha told investors and analysts.

In 2020, Hyundai and Kia together made 3.6 trillion won in provisions related to engine issues.

Hyundai Motor is scheduled to report its July-September earnings next Monday, while Kia has not yet announced when it will report its third quarter results.