VW to recall thousands of vehicles in China

The Financial Times, March 20, 2013

Volkswagen, one of China’s top two foreign carmakers by sales, is to recall more than 380,000 vehicles after an expose by Chinese state television.

The recall, which could prove a blow to one of China’s most popular car brands, aims to resolve a longstanding gearbox problem.

The recall comes at a time of growing anxiety in China over product safety, following a series of scandals involving fake or tainted food – including poisoned milk powder.

It could also further shake the confidence of Chinese consumers in foreign brands, which have, up until now, been viewed as much safer than domestic products. A recent food quality scandal involving the chicken served at Yum Brands’ KFC restaurants has begun to erode the automatic assumption that foreign brands are always superior, retail analysts say.

CCTV, the Chinese state television channel, has recently tried to carve out a niche for itself as a defender of the public interest by conducting investigative reports into sensitive issues such as food safety.

Foreign luxury carmakers were targeted by CCTV this month, with a programme that said that the interiors of some premium cars made in China contained harmful chemicals. Daimler, one of the companies pinpointed in the report, said the materials used in the interiors of its Chinese-made cars “comply with all existing regulations worldwide”.

VW said its recall was voluntary: “In isolated cases, an electronic malfunction in the control unit or a lack of oil pressure inside the gearbox mechatronics may result in a power interruption.”

“The most important vehicle systems, such as steering and braking, along with other relevant systems will not be affected regarding their functionality,” it added. No deaths or injuries were reported in connection with the problem.

Auto market analysts said they did not expect a significant long-term impact on VW sales. “VW has been dealing with gearbox problems for quite some time already, and this has not substantially affected their sales,” says Klaus Paur, global head of automotive for Ipsos consultancy in Shanghai. “But it could grow into a long-term problem if the matter is not solved sometime soon”.

Bill Russo, head of Synergistics auto consultancy in Beijing and a former head of Chrysler in China, said: “VW remains in a strong position in China and should recover from this over the longer-term.” But he added that the episode could “help level the playing field as it relates to the foreign and domestic competitors in the Chinese auto market”.

Additional reporting by Yan Zhang in Shanghai

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