Hyundai-Kia’s Billion Dollar Engine Problem that Broke the NHTSA Civil Penalty Barrier

A federal judge in California has put one class-action lawsuit in peril and approved a settlement in another alleging defects in Hyundai and Kia engines. The Korean automaker’s billion-dollar-plus legal liability is on top of the largest civil penalty the National Highway Traffic Safety Administration has ever levied against an automaker. The language of the consent agreement was opaque, but the public record is clear.

On May 11, U.S. District Judge Josephine L. Staton approved a $1.3 billion settlement that consolidated several 2017 and 2018 nationwide class action lawsuits, alleging that Hyundai Kia refused to recall vehicles with the Theta II GDI engine, even though the automaker knew the engine was defective. Representing 3.9 million owners of Hyundai Sonata, Santa Fe, and Tuscon vehicles, and Kia Optima, Rio Sorento, Soul and Sportage vehicles, roughly in the 2011 to 2019 model years, the plaintiffs charged that the Theta II GDI was prone to catastrophic failures and non-collision fires, which exposed vehicle owners to safety hazards and economic losses.

This ruling comes on the heels of Judge Staton’s dismissal last week, with leave to amend, of another California class alleging that Hyundai/Kia vehicles with Gamma 1.6L Gasoline Direct Injection engines were defective – different engine, same complaints: stalling, excessive oil consumption and fires. Judge Staton ruled that this complaint, filed in August 2020, failed to assign a cause to these symptoms other than poor manufacturing quality.

And, six months earlier, NHTSA announced a whopper of a civil settlement with Hyundai Kia – $210 million – the agency’s largest penalty ever. It stands out because it’s been a minute since NHTSA has imposed any meaningful penalties on manufacturers uninterested in following safety regulations. The watershed years were 2014-2015, when the agency, with former Administrator Mark Rosekind at the helm, issued 10 consent orders totaling more than $530 million against a variety of manufacturers, including Hyundai, Honda, GM, and Fiat Chrysler, mostly for untimely recalls and failing to submit Early Warning Reports. But perhaps, with the Trump administration gone, it feels safe to regulate and enforce again.

(NHTSA kicked off 2021 with a $30 million penalty against Daimler Trucks North America following a 2018 investigation into seven recalls that were launched in 2017 and 2018. According to the Consent Order, the agency charged that, based on Daimler’s chronologies of events, it failed to launch timely recalls. In addition, the agency said, Daimler failed to produce timely information — including field reports — to NHTSA as it conducted a recall query. The agency opened Audit Query 18-002 in April of that year to examine four recalls that involved semi-trucks, school buses with wheelchair lifts, and recreational vehicles. Later, NHTSA expanded it to include three more recalls – two of which were expansions of earlier recalls.)

What did the Korean automaker do to earn such a righteous slap? The Consent Order only mentions “inaccuracies” and “omissions” in its communications with the agency and a failure to launch timely recalls involving more than 1.6 million Hyundai and Kia vehicles suffering from a manufacturing defect that allowed metal debris to cause premature wear of a bearing that could lead to an engine stall.

But the troubles of Hyundai Kia vehicles with Gasoline Direct Injection (GDI) engines are much more complex than that. Over the last five years, millions of Hyundai and Kia models have been the targets of four different investigations, class-action lawsuits, extended warranty programs, a product improvement campaign, and 10 recalls to deal with defects that cause stalls and non-crash fires attributed to a variety of causes. Even as Hyundai Kia agreed to pony-up to settle the class-action and NHTSA’s allegations of untimely recalls, it remains under agency scrutiny for non-crash fires plaguing many models in its fleet.

According to Hyundai, its troubles began in April 2011, when its Montgomery, Alabama, assembly plant changed the way it removed machining debris from the crankshaft of the new Theta II GDI engine. Hyundai had invested four years and $147 million developing the Theta II. Car and Driver described its launch as “the next step towards [Hyundai’s] bold goal of becoming the fuel-economy leader.” Unveiled in 2009, the 2.4-liter GDI’s first application was the 2011 Sonata.

But, once in the field, Hyundai saw its warranty numbers rise, as customers filed claims for excessive noise, an illuminated check engine light, and – to a lesser extent – moving stalls. Hyundai wasn’t overly concerned, it later told NHTSA, because the majority of those customers did not mention the speed of the vehicle at the time of the stall and they were also able to restart their vehicles and/or move the vehicles to the side of the road.

By June 2015, the complaints to NHTSA’s VOQ database were approaching heights that caught the agency’s attention, and it reached out to Hyundai. The automaker conveyed its lack of concern – a feeling NHTSA did not share, especially in the case of a high-speed stall.

In September 2015, Hyundai recalled 470,000 Model Year 2011-2012 Sonata vehicles equipped with 2.4L and 2.0L Theta II GDI engines. Hyundai described the defect as metal debris generated while manufacturing the engine crankshaft being left in the component’s oil passages. Over time, these metallic bits could be “forced into the connecting rod oiling passages restricting oil flow to the bearings,” reducing the flow of oil and possibly raising the temperatures. This condition could lead to premature wear of the connecting rod bearing, eventual failure, and a vehicle stall. The remedy for this defect was an engine noise inspection, which consisted of moving the vehicle to a quiet place and positioning a mobile tablet near the steering wheel to assess the engine sound. An algorithm – unexplained in the repair instructions – determined if the vehicle passed or failed the inspection. The latter got a new engine; the former got a new dip stick and an oil top-off.

At the same time, Hyundai extended the warranty for the engine short block assembly for all recalled vehicles, plus the net two model years that had been manufactured at the Montgomery plant – in other words, they launched a silent recall.

Kia also had Optima, Sorento and Sportage models equipped with 2.4L and 2.0L Theta II GDI engines, but it took no action in 2015 because it checked its Theta engine manufacturing process, which involved a separate assembly line using different procedures, and found no issues, with “extremely low” rates of warranty and field claims.

Over the next 18 months, according to chronologies Kia and Hyundai submitted to NHTSA, they continued to monitor the issue. Kia contracted engine manufacturer Translead to conduct a detailed review of Kia warranty-returned engines. Translead identified an oil delivery issue, but the claims rate was still low, so Kia did nothing.

In May 2016 — Kia told NHTSA — it learned about Hyundai’s extended warranty program for the Sonatas (Really? It took eight months before they knew about that?) and took another look at the field data. The claims were still low, but picking up as customer satisfaction eroded under the high repair costs for out-of-warranty vehicle owners. Kia also decided to extend its warranty to all 2011-2014 Optima owners with 2.0 or 2.4-liter GDI engines to 10 years or 120,000 miles – in other words, it did a silent recall.

The field data for Theta GDI engine claims for the 2011-2014 Sportage and Sorento vehicles was also rising – although by not as much as the Optima. In August 2016, Kia decided to launch another silent recall covering those models. Kia encouraged owners who heard engine knocking sounds to bring their vehicles in for repairs, but dealers were turning away anyone who could not produce their oil change records.

That same month, Hyundai engineer and 26-year company veteran Kim Gwang-ho, flew to the U.S. to meet with NHTSA officials. Kim, a member of Hyundai’s Quality Strategy team, which makes recall decisions, alleged serious safety lapses involving the Theta GDI engines. Citing an internal quality report, Kim raised his concerns that the 2015 recall did not cover the entire population of affected vehicles in the U.S. and South Korea. He also stressed thatthe problem was also related to the engine design, not just a manufacturing defect.

Throughout the fall, Kia determined that its customer mailing list was out-of-date and the extended warranty notices were not reaching consumers, and it did a second mailing. By December, the VOQ data showed that people who complain about a stall still have enough motive power to get to the side of the road. Complaints were also dropping as its customers become aware of “remedy and free repair” offered in the silent recall.

Likewise, Hyundai continued to monitor engine-related field data during 2016 and into 2017. Despite having blamed the problem on a manufacturing process that it had long-ago corrected, Hyundai was tracking a rise in claims for engine replacement in later model years related to substantial noise or illuminated check engine or oil pressure warning lights, or stalls at higher speeds. By March 24, 2017, Hyundai decided to convert the silent recall for the remaining 2013 and 2014 Model Year Sonatas to an actual safety recall (17V-226), and to add the Santa Fe Sport vehicles manufactured at the Montgomery plant, which were having the same problems. Total recall population – 572,000 MY 2013-2014 vehicles.

Coincidentally, four days later, Kia launched its own recall (17V-224) for 443,825 MY 2011-2014 Kia Optima vehicles; 165,918 MY 2012-2014 Sorento vehicles; and 8,417 MY 2011-2013 Sportage vehicles, “based on anticipatory risk concerns.”

Also coincidentally, both described the defect in near identical language – metal debris from factory machining, leading to restricted oil flow to the main bearing, engine knock and an illuminated oil pressure warning light, and causing eventual failure and a stall. Neither explained why machining debris was still afflicting engine assembly lines even though Hyundai supposedly fixed it, and Kia never had the issue to begin with.

Given its inside intel from Kim, NHTSA was understandably suspicious of these unconvincing Part 573 Notices of Defect and Non-compliance, and in May 2017, opened a Recall Query to determine if Hyundai and Kia met its regulatory burden of issuing these recalls within five days of learning of a defect.

Something’s Burning

While NHTSA was digging into Hyundai Kia’s stall issues, the Center for Auto Safety was collecting instances of non-crash fires in an overlapping population of vehicles that shared the Theta II GDI engine. In June 2018, CAS petitioned NHTSA to open an investigation into the Hyundai MY 2011-2014 Sonata and Santa Fe vehicles and Kia MY 2011-2014 Sorento and Optima vehicles. The non-profit cited 120 consumer fire complaints filed to the agency’s VOQ database and another 229 VOQs of melted wires, smoke, and/or burning odors.

The agency obliged, opening a Defect Petition investigation in August 2018 covering 2.2 million vehicles. The Opening Resume noted that the majority of the reported fires appeared to be related to the engine failures in the recall queries.

In October of that year, CAS publicly called on Hyundai and Kia to recall those vehicles, plus the 2010-2015 Kia Soul, charging that the incidents were ongoing and occurring with greater frequency and intensity. Since their initial request to NHTSA, CAS said, it had tallied an additional 103 fire reports, equaling almost one fire a day across those five models.

Litigators entered the fray, filing multiple multi-district class-action lawsuits. Under pressure from the regulators and the plaintiffs’ bar, Hyundai Kia began rolling out the recalls:

In December 2018, Hyundai/Kia launched a safety campaign involving more than 218,000 vehicles covered by the 2015 and 2017 recalls that received the engine replacement repair because the high-pressure fuel pipe may have been damaged or improperly installed, allowing fuel leaks that could lead to fires.

In February 2019, Kia recalled 378,967 2012-2016 Souls with 1.6-liter Gamma GDI engines for an overheating catalytic converter. Kia blamed faulty ECU logic for the Catalytic Overheating Protection, which could allow the high temperature of exhaust gases to damage the catalytic converter and cause abnormal engine combustion, leading to engine piston damage and rod breakage. Eventually, oil could escape the engine block, contact the hot exhaust surface, and start a fire.

It was, no doubt, a good effort. But not enough to deter NHTSA from bumping up the Defect Petition investigation to a Preliminary Evaluation (PE19-003) in March 2019. By that time, the agency counted — between its own VOQs and Hyundai/Kia reports — 1,341 non-crash fire complaints, with 26 injuries.

There is very little in the public file related to the search for root causes. But, suffice it to say, the inquiry sent Hyundai Kia in a lot of different directions. Between February and December 2020, the automaker launched 11 investigation-influenced recalls covering more than 2.5 million vehicles to address non-crash fires in a wide variety of models for a variety of causes — leaky fuel feed lines, short-circuiting ABS modules and ABS brake hydraulic electronic control units, and rod bearing failures. A December Kia recall for 295,000 Sorento, Forte, Koup, Optima Hybrid, Soul and Sportage vehicles made little attempt at a defect description. The Part 573 merely states that “an engine compartment fire can occur while driving for many reasons and depending on the severity of the fire, the identification of the cause can be untraceable.”

Yes, there are “many reasons” why NHTSA fined Hyundai Kia $210 million in November even if you can’t read about them in the consent agreement. Meanwhile, the NHTSA investigation into non-crash fires remains open.

As for the nearly 4 million Hyundai/Kia owners represented in the consolidated MDL, the $1.3 billion settlement includes free diagnostic Knock Sensor Detection Software, which continuously monitors engine performance for the symptoms that precede engine failure; a Lifetime Warranty covering all costs associated with inspections and repairs; reimbursements for any out-of-pocket costs borne by owners who had their vehicle repaired outside of or before the recalls; and loss of value payments.

The Theta II was intended to be the engine that rocketed Hyundai Kia’s cars to the top ranks of fuel efficiency. Instead, it broke federal civil penalty records. Theta, the eighth letter of the Greek alphabet, denotes a variety of mathematical and scientific concepts, such as a plane angle in geometry, an unknown variable in trigonometry, and a potential temperature in meteorology – to name a few of the easier-to-grasp representations. Within the engineering circles at Hyundai and Kia, it might as well represent the engine from hell.