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Hyundai Offers $85 Million to Settle Horsepower Suit

Automaker overstated the horsepower of Hyundai and Kia cars exported to the U.S.

Hyundai is offering to pay more than $85 million to settle a class-action lawsuit that was filed after the Korean automaker overstated the horsepower of Hyundai and Kia cars exported to the U.S.

Plaintiffs in the suit are roughly 840,000 consumers who bought 1996 to 2002 model year vehicles. Hyundai has admitted overstating engine power by as much as 10%. Company officials say it was an oversight, that they miscalculated the effect of U.S. anti-pollution devices.

The company blamed the misstatements -- which affected nearly half the cars in sold in the U.S. from the mid-1980s until late 2002 -- on "mistakes and disorganization" within Hyundai.

The miscalculations affected about 1.3 million cars, of which 400,000 were misstated by more than 4 percent. The company estimates that the average misstatement among all 1.3 million vehicles was 4.6 horsepower.

Hyundai originally offered to provide extended warranties and roadside assistance plans to affected consumers. It attempted to downplay the seriousness of the mistakes, saying that customers who buy Hyundais are not primarily intersted in horsepower.

"As you may know, horsepower is not a major reason for buying Hyundai vehicles," said Finbarr O'Neill, who was President and CEO of Hyundai Motor America Inc. at the time the misstatements were made.

The errors were discovered when the Canadian government questioned the horsepower on the Elantra. Hyundai advertised the car as having 140 horsepower but after the Canadian inquiry it said tests showed the figure was actually 135.

Consumers didn't buy the company's defense and class-action suits alleged that Hyundai deliberately overstated engine power to influence prospective buyers.

Last year, Hyundai thought it had bought its way out of the suits when it brokered a deal in a Texas case that would have provided free oil changes and discounts on new vehicles. But attorneys handling a competing case in California objected and the judge rejected the settlement.

The current settlement proposal involves a consolidated class action filed in Orange County Superior Court in September 2002 that wraps together seven cases.

In letters sent to owners this month, Hyundai offered prepaid debit cards good at various retailers and valued at $50 to $225, or shopping cards worth $100 to $325 good for parts or service at Hyundai dealerships. The size of the payment depends on the degree to which a vehicle's horsepower was inflated.

The largest group of car owners consists of 459,000 people with 1999 to 2002 Hyundai Elantra sedans and 1997 to 2001 Tiburon sport coupes. Horsepower in those models was overstated by 2.5% to 3.9%.

A ruling on the settlement is expected at a June 16 hearing in Santa Ana.

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