SEOUL South Korea ordered Hyundai Motor Co (005380.KS) and affiliate Kia Motors Corp (000270.KS) to recall 240,000 vehicles over safety defects flagged by a whistleblower - a sharp slap on the wrist that will exacerbate reputational woes for the automakers.
The move marks the first compulsory recall ordered by the transport ministry for Hyundai and Kia, which had resisted an earlier request for a voluntary recall, and gives fresh credence to allegations made by Kim Gwang-ho, a Hyundai engineer with 26 years at the company.
The ministry has also asked prosecutors in Seoul to investigate whether the automakers allegedly covered up the five flaws, which affect 12 models, including the Elantra, Sonata, Santa Fe and Genesis.
Hyundai and Kia, which had previously argued that the flaws presented no danger to driving safety, said in a joint statement on Friday they would cede to the order.
They added there had been no reports of injuries or accidents due to the problems which include defects in parking brake warning lights, and denied that there had been any cover-up.
In the first whistleblower case to hit South Korea's auto industry, Kim has made allegations about 32 problems to local regulators. The latest recalls covers five of those problems.
Kim also flew to the United States last year to report safety lapses to authorities there and the automakers have since issued a voluntary recall for a combined 1.5 million vehicles in North America and in South Korea over a defect that could cause engines to stall.
"What the whistleblower said turned out to be true," said Samsung Securities auto analyst Eim Eun-young.
"This is negative for Hyundai's brand image after the hit from the recall over engine issue last month. But then, its reputation is already seen at the rock bottom in South Korea, so I am not sure whether there is a room for a further fall."
Hyundai and Kia are the dominant brands in their home country with around two thirds of the market. However, customer ire has grown due to the perception South Korean automakers are not working swiftly to address quality concerns.
Hyundai's recall for the engine problem was made in South Korea only last month - one year after it recalled cars for the similar engine issue in the United States.
Even before Kim's allegations came to light, customer accusations that their South Korean vehicles are priced higher and offer fewer and inferior features than those sold in the United States were widely covered by local media.
Shares of Hyundai Motor ended down 1.6 percent and Kia Motors fell 1 percent. The broader market declined 0.5 percent.
(Reporting by Hyunjoo Jin; Editing by Edwina Gibbs)