Hyundai Motor and Kia Motors have faced an unexpected obstacle due to a defect in their "Theta II" engine. Securities analysts said it will be hard for the car makers to improve their results this year.
According to automobile industry sources on April 11, the two Korean auto makers will recall 110,000 cars mounted with the Theta II engine in Canada. This is, according to the companies, due to the uneven processing on the surface of some engine parts. Car owners complained of noise and vibration in their cars. Hyundai and Kia are set to recall 1.19 million cars for the same reason in the U.S. market.
Earlier, the companies announced that they would recall 171,348 cars in five models including the Grandeur, Sonata, K7, K5, and Sportage in Korea. The reasons for the recall were excessive heat in the engine that may cause malfunction in ball bearings.
In total, the number of cars recalled in relation to the Theta II engine defect has increased to 1.47 million. Due to the massive recall incident, Hyundai and Kia will see their financial results suffer. Kim Pyung-mo, analyst with Dongbu Securities, said, "The allowance for recalls for Hyundai Motor and Kia Motors is 250 billion won and 200 billion won each. The amount will be reflected in the first-quarter results which will be much below the consensus level."
He estimated that the quarterly operating profit of Hyundai and Kia will be 1,029.3 billion won and 344.2 billion won due to losses in relation to the recall. These figures are down 23.3 percent and 45.7 percent from four quarters ago.