US prosecutors investigate Hyundai and Kia following recalls, sending shares slipping

US prosecutors are investigating Hyundai Motor and its subsidiary Kia Motors to find out if the vehicle recalls were done properly, according to a source and documents reviewed by Reuters, which sent their shares slipping.

South Korean companies, which make up the world's fifth-largest automaker, have recalled nearly 1.7 million vehicles in 2015 and 2017 in the United States at one of their biggest boosters in the country, citing a engine failure that increases the risk of an accident.

The US Attorney's Office for the Southern District of New York (SDNY), part of the US Department of Justice (DOJ), has opened a criminal investigation, told Reuters this person who knew about the case .

It remains to be seen if the probe will lead to charges, added the person. If criminal charges are filed, it could result in heavy fines for Hyundai and Kia.

An investigation by US prosecutors adds to the woes of Hyundai and Kia at a time when they are struggling with slow sales in the United States and China.

The duo's shares fell Thursday after the news, with Hyundai losing 3.2%, its lowest level in nearly nine years, and Kia, 4.8%. Hyundai Mobis, their spare parts subsidiary, also slipped 6.5% in a wider market that lost 0.3%.

"There are many uncertainties around US investigations. If charges are laid, this would not only result in fines, but also negatively impact their brand image and sales, "said Angela Hong, an analyst at Nomura.

Department of Justice coordinates investigation with US Transportation Control Authority, NHTSA, on inquiry issue, said person, asking not to be identified because case is confidential .

Nicole Navas Oxman, a spokeswoman for the DOJ, declined to comment.

"As a rule, the Justice Department does not confirm, deny and comment on the existence or not of an investigation," she said in a statement sent to Reuters by mail electronic.

The United States has already investigated and imposed strict sanctions on other automakers, such as Toyota Motor and Volkswagen AG.

In 2017, a US judge denied a criminal charge against Toyota after three years of surveillance under a $ 1.2 billion settlement that admitted to misleading the public about a sudden acceleration and involuntary of his vehicles.

The settlement included the most significant fine imposed by the US on a carmaker until Volkswagen admits diesel emission fraud and pays $ 4.3 billion fine in 2017.

In addition to the SDNY investigation, Hyundai and Kia are also being investigated by NHTSA as to whether their recalls covered enough vehicles and had proceeded quickly.

NHTSA is conducting "active" investigations into engine problems with certain Hyundai and Kia vehicles, the regulator told Reuters.

"These investigations are ongoing – no final conclusions have been drawn," adds the text.

Hyundai declined to comment on the SDNY probe.

COST OF RECALLS

Hyundai and Kia have already reserved around W1 trillion (US $ 885 million) in 2017 and 2018 to cover costs mainly related to recalls for engine problems.

In the United States, Hyundai recalled 470,000 Sonata sedans in 2015 due to the failure of the "Theta II" engines. In 2017, it extended its US recall to 572,000 sport utility vehicles Sonata and Santa Fe, citing the same engine problem, NHTSA said.

Kia also recalled 618 160 Optima, Sorento and Sportage vehicles using the same engine in the United States.

However, Kim Gwang-ho, a Hyundai engineer and a 26-year veteran of the company, told NHTSA that companies should have recalled more vehicles in 2015, citing an internal report.