Punitive Damages System Implemented from the 5th
Late Recall Penalty Increased from 1% to 3%
[Asia Economy Reporter Kangwook Cho] Starting from the 5th of next month, if a car manufacturer intentionally conceals or downplays a vehicle defect, they will be required to compensate five times the amount of the damages. Additionally, if a recall is delayed despite knowing the defect, a fine of 3% of sales will be imposed.
The Ministry of Land, Infrastructure and Transport announced that with the completion of amendments to the Automobile Management Act and subordinate laws, which were promoted according to the ‘Automobile Recall Response System Innovation Plan’ established in 2018 to prevent a recurrence of the ‘BMW incident,’ punitive damages and other measures will be enforced starting from the 5th of next month.
According to the revised Enforcement Decree of the Automobile Management Act, which passed the Cabinet meeting on this day, sanctions against car manufacturers will be strengthened in cases of concealment, downplaying defects, or delayed recalls.
If a car manufacturer conceals, downplays, or falsely discloses defects, a new fine (3% of sales) will be imposed, and if a recall is delayed despite knowing the defect, the fine will be increased (from 1% to 3% of sales).
Furthermore, to encourage prompt recalls, if a manufacturer voluntarily recalls after confirming non-compliance with safety standards before the government initiates a defect investigation, the fine may be reduced (up to 50%).
In particular, if a car manufacturer knowingly conceals, downplays, falsely discloses, or fails to correct defects, causing significant damage to the life, body, or property of vehicle owners, they will be liable for compensation up to five times the damages incurred (punitive damages).
In cases where repeated fires or casualties occur in the same type of vehicle, the manufacturer must submit necessary materials for defect investigation. Failure to submit materials will lead to the presumption of a defect. If presumed defective, the manufacturer must conduct a recall, and failure to comply may result in sanctions for delayed recall.
Additionally, a new provision allows performance test agents (such as the Korea Automobile Testing & Research Institute) to request data submission from manufacturers during defect investigations, and failure to submit data may result in a fine of up to 20 million KRW.
If repeated fire accidents caused by defective vehicles pose a serious threat to public safety, the Minister of Land, Infrastructure and Transport may, after consulting with the Commissioner of the National Police Agency, order restrictions on the operation of defective vehicles to enable prompt response.
Yoon Jin-hwan, Director of Automobile Policy at the Ministry of Land, Infrastructure and Transport, emphasized, "With the enforcement of this law, we expect to promote prompt corrective actions (recalls) by car manufacturers, contributing to the enhancement of consumer rights and safety," adding, "We will continue to improve the recall system going forward."
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