Gearbox recall in China expected to cost Volkswagen over $600 million

Article by Anita Panait, on March 22, 2013

Volkswagen AG recalled 384,181 vehicles in China to replace defective transmissions that may lead to acceleration loss. The vehicle recall is expected to cost Volkswagen over $600 million. Volkswagen and its joint ventures recalled models like the Golf, Magotan, Sagitar and Audi A3, according to China's quality inspector.

Research firm LMC Automotive put the cost of the replacements to be between CHY3,000 ($483) and CHY10,000 per vehicle. The recall is considered to be a major setback to Volkswagen as the German company aims to become the largest carmaker in the world by 2018, with China being its biggest market.

Volkswagen’s recall came less than a week after state broadcaster China Central Television showed Volkswagen’s Chinese customers complaining about abnormal vibrations, loss of power and sudden acceleration in vehicles fitted with the carmaker’s proprietary gearbox technology.

Bill Russo, president of auto consultancy Synergistics Ltd, noted that dealing with an issue “that plays out in the public's eyes” always damages reputation. He added that Volkswagen’s concern should be how and when it could recover from the damage done by the defective gearboxes. The German carmaker is recalling vehicles fitted with a seven-speed version of its direct-shift transmission.

It has promised to incur the cost for replacing defective equipment and upgrading the software. Volkswagen sold around 680,000 vehicles fitted with the potentially faulty DSG gearboxes, LMC estimates. Volkswagen China spokesman Christoph Ludewig remarked that there have been no injuries or accidents reported due to the DSG gearbox problem. The recall includes 21 types of vehicles including variants of the Scirocco, Bora, Touran, Octavia, Passat vehicles built between 2008 and March 2013.

Just recently, Volkswagen disclosed that the group is planning to hike production in China by 60 percent by 2018 based on its 2012 earnings increased by over 40 percent. From its current capacity in China of around 2.5 million units, VW Group seeks to build 4 million vehicles a year by 2018.

According to CEO Martin Winterkorn, a new plant in China – to be approved by the supervisory board -- would roll out up to 300,000 vehicles each year and will begin operations in early 2016. At a speech during VW’s annual press conference, Winterkorn said that within the next several years, the carmaker will construct at least 10 more plants, seven of which will be located in China. VW’s strategy for China would increase the number of its factories in the country to 19 sites.

VW is expecting that its expansions in the US and in China as well as it gains from Audi would allow it to offset the weakening of demand in Europe. The VW Group is hoping to sell 1 million units in the US by 2018.

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Topics: vw, china, recall

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