Bloomberg News

China Orders Recall of Volkswagen Vehicles After State TV Probe

March 17, 2013

China’s quality watchdog told Volkswagen AG (VOW) to recall vehicles fitted with the direct-shift gearbox system, after Europe’s biggest carmaker was targeted in China Central Television’s annual consumer-rights day program.

The General Administration of Quality Supervision, Inspection and Quarantine issued the order after tracking faults related to the system for the past year, according to a statement on its website on March 16. The previous day, CCTV highlighted the defects as part of a two-hour prime-time show, along with flaws in Apple Inc. (AAPL:US)’s after-sales service and investigations into a local automaker and substandard cement.

China is stepping up consumer protection, adopting laws this year that gave the watchdog power to order investigations and impose fines should manufacturers and importers fail to recall faulty products in a timely manner. The nation’s legislature approved plans last week to give more power to the food and drug regulator amid growing public discontent over quality and safety.

McDonald’s Corp., the world’s largest restaurant chain, and Carrefour SA, the world’s second-largest retailer, were targeted by CCTV in a program marking World Consumer Rights Day last year. In 2011, the show highlighted Henan Shuanghui Investment & Development Co., a Chinese sausage maker, for buying pigs which were fed an illegal additive.

Premier Li Keqiang, giving his first press conference yesterday after the close of the NPC, pledged to tackle food problems and the environment with an “iron fist.”

Voluntary Recall

In its March 16 statement, the quality watchdog didn’t say how many Volkswagen vehicles would be involved in the recall and calls to its news department seeking comment went unanswered over the weekend.

“Volkswagen will implement a voluntary recall regarding the DSG issue,” Christoph Ludewig, the company’s Beijing-based spokesman, said in an e-mailed statement on March 16. Details will be announced at a later date, he said.

Owners of VW vehicles fitted with the direct-shift gearbox system in China, the company’s biggest market, have reported abnormal vibrations, loss of power and sudden acceleration, according to CCTV’s report.

The Wolfsburg, Germany-based automaker has been aware of issues with the system since last year. In May, it said its Chinese division agreed to extend the warranty for the automatic transmission technology to 10 years in response to customer complaints. The standard warranty is two years.

After-Sales Flaws

By that time, Volkswagen had sold almost 1 million autos in China with the direct-shift gearbox system and only a “few hundred” had faults that prompted driver feedback, according to a Bloomberg News interview with Harthmuth Hoffmann, a company spokesman, on May 31.

In its March 15 program, CCTV investigated alleged flaws in the after-sales service of Cupertino, California-based Apple. The company’s spokeswoman in Beijing, Carolyn Wu, didn’t answer her mobile phone or reply to an e-mail seeking comment.

Apple slipped to sixth place from fourth in China’s smartphone market in the third quarter of 2012. Samsung leads the China smartphone market in share, and four domestic suppliers also now outsell the iPhone in the nation, according to market researcher IDC.

Even so, Apple’s sales in China in its fiscal first quarter climbed 67 percent from a year earlier to $6.83 billion, the company said in January.

The consumer program also reported on impure gold made in a workshop in Shenzhen and sold in shops in Tianjin and Hebei, and on some Chinese medical companies, including one in Henan province, who hired actors to masquerade as doctors to promote products.

CCTV also investigated the use of substandard concrete by some developers in the southern city of Shenzhen who used low- quality sea sand instead of river sand. The Shenzhen Housing and Construction Bureau found 31 concrete-mixing plants violated industry rules, according to a statement posted on its website on March 16.

--Michael Wei, Fan Wenxin. Editors: Nerys Avery, Nicholas Wadhams

To contact Bloomberg News staff for this story: Michael Wei in Shanghai at mwei13@bloomberg.net;

To contact the editor responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net


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