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Toyota Recalls Lexus in China as Tougher Laws Broaden Liability

January 30, 2013

Toyota Motor Corp. (7203) voluntarily recalled 22,869 Lexus cars in China because of defects with windshield wipers, the biggest call back since a new law broadening manufacturer liability came into force this year.

The company recalled the imported Lexus IS cars, which were made from January 2006 to September 2011, according to a statement on the website of China’s General Administration of Quality Supervision, Inspection and Quarantine, or AQSIQ. Toyota said yesterday it recalled almost 1.3 million vehicles worldwide because of defects associated with airbags and window wipers.

China is stepping up protection for consumers as automakers from General Motors Co. (GM:US) to Volkswagen AG (VOW) seek to expand sales in the world’s largest auto market. The new law allows the government to order investigations and impose fines should manufacturers and importers fail to recall faulty vehicles in a timely manner. A separate rule mandating minimum standards for automobile warranties comes into effect from October.

“Definitely, it will increase costs,” said Paolo Beconcini, managing partner at Carroll, Burdick & McDonough LLP in Beijing, whose firm advises European and U.S. automakers in China on product liability, safety and intellectual property issues. “Car manufacturers will have to invest more resources internally to have people working on investigation, supporting the work of AQSIQ.”

Levy Fines

Under the new law, the government can levy fines on manufacturers and importers of as much as 200,000 yuan ($32,152) for failing to keep proper records, to as much as 10 percent of the value of the defective vehicles for refusal to recall. Serious violations can result in a revocation of licenses.

Before this law, automakers that avoided recalling defective vehicles were fined up to 30,000 yuan. The term manufacturer has been redefined in the new law to include importers to ensure responsibility for imported vehicles that may be faulty, said Beconcini.

Allen Lyu, head of Nissan Motor Co. (7201)’s Infiniti brand in China, said it’s difficult to estimate how much costs will go up as a result of the new warranty and recall laws.

“We need a certain period of time to understand how the policies will be executed,” he said this week in Beijing.

The upcoming warranty law, commonly referred to as “san bao” in Chinese, lays out the guidelines for repair, replacement and refunds for vehicle purchases. Effective Oct. 1, automakers must guarantee repairs for new vehicles for at least three years or 60,000 kilometers (37,282 miles), whichever is first reached.

Boosting Quality

“The policy will boost product quality,” said Zhu Fushou, president of Dongfeng Motor Group Co., which makes passenger vehicles with Nissan and Honda Motor Co. “It will also help squeeze out inefficient companies. It is better to take proactive measures rather than passively accept it.”

Hyundai Motor Co. (005380) said on Jan. 4 it will voluntarily recall 2,864 Veloster cars in China because of defects associated with brake-sealing rings. The company became the first automaker that recalled vehicles under the new rule.

Renault SA recalled 5,097 Koleos sport utility vehicles on Jan. 25 for welding faults.

Last year, a total of 113 cases of vehicle recalls were administered, with 3.2 million defective vehicles being recalled, a 75 percent increase from the year before, according to AQSIQ. Issues about vehicle powertrains made up the largest portion of complaints, the regulator said.

No automaker or importer has been fined under the new legislation so far.

“If implemented strictly, OEMs will need to have tighter controls on quality or they’ll have to pay extra costs,” said Lin Huaibin, an analyst with researcher IHS Automotive in Shanghai.

To contact Bloomberg News staff for this story: Alexandra Ho in Shanghai at aho113@bloomberg.net; Tian Ying in Beijing at ytian@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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