Why General Motors Will Pay $100 Million to SUV Owners

By Markets Fool.com

Owners of 2016 Buick Enclaves will be among thosereceiving compensation foroverstated fuel economy claims. Image source: General Motors.

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General Motors will compensate 146,000 American and Canadian owners of new GM crossover SUVs after GM disclosed that it had overstated the vehicles' fuel efficiency.

What's happening

GM said on Friday that buyers of 2016 model year Chevrolet Traverse, GMC Acadia, and Buick Enclave crossover SUVs would receive debit cards or extended warranties to compensate them for the overstatement.

Most of the debit cards will be worth $450 to $900 for U.S. owners and 1,000 to 1,300 Canadian dollars for Canadian owners. Citing an internal GM source, Reuters reported that the program would cost GM about $100 million.

Why GM is compensating owners

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GM said last week that the EPA fuel economy numbers on the new SUVs' window stickers were overstated by as much as 12%. The vehicles are correctly rated at 15 miles per gallon in city driving and 22 miles per gallon on the highway, for a combined rating of 17 miles per gallon. But their window stickers showed ratings of 17 city, 24 highway, and 19 combined.

GM insisted that the misstatement was essentially a clerical error. The company said that its engineers had changed some of the vehicles' emissions control hardware for the 2016 model year. While the engineers had appropriately recalculated the vehicles' fuel economy numbers, GM said, those recalculated numbers never made it onto the window stickers -- or into GM's latest marketing materials.

Automotive News reported on May 13 that GM had ordered its dealers to stop selling the Traverse, Acadia, and Enclave until GM could replace the vehicles' window stickers. It also advised dealers to correct or dispose of any marketing materials that show the incorrect fuel economy ratings.

Will GM face fines or penalties for this?

It's not yet clear. Theoretically, the U.S. Environmental Protection Agency (EPA), which regulates new vehicles' fuel economy ratings, could impose fines or other penalties. But so far, it looks like GM is being proactive and keeping the EPA in the loop, which will count strongly in its favor.

EPA officials said that GM had told the agency about the error and explained what it was doing to correct the window stickers and marketing materials, according to the May 13 Automotive News report. The report said that the EPA had asked GM to "provide all relevant information" about the circumstances that led to the error. GM has also been asked to provide testing data to back up its revised mileage ratings, according to a separate Reuters report.

Is this a big deal for GM?

Yes and no. In and of itself, it's not a big deal: GM admitted a small mistake, promptly notified the EPA, and moved proactively to compensate owners. Under normal circumstances, that would be the end of the story. But things aren't normal for GM or for the auto industry at large right now.

While GM has largely moved past the consequences of its ignition-switch recall scandal, there's still an element of mistrust of the General -- or perhaps more accurately, a sense that GM needs to go to extra lengths to show that it's doing the right thing.

That's doubly true given the messes that have ensnared rivals over the last few years, from Hyundai's 2014 admission that it had overstated fuel economy ratings to the massive diesel emissions cheating scandal that has already cost Volkswagen billions.

To her immense credit, I think GM CEO Mary Barra is very aware that GM needs to be doing the right thing at all times, and I think GM has done well with this situation so far.

Chances are that it will fade in the rearview mirror before long. But if there's more to the story than GM has said so far, this could turn out to be a big and expensive mess. Stay tuned.

The article Why General Motors Will Pay $100 Million to SUV Owners originally appeared on Fool.com.

John Rosevear owns shares of General Motors. The Motley Fool recommends General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.