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Vehicle recall with Chinese characteristics

China sold nearly 22 million automobiles in 2013, the fifth consecutive year leading the world in new vehicle sales and 41 percent more than the 15.6 million vehicles sold in the U.S. This seems to be inspiring news, but volume alone does not tell the whole story of the market in 2013.

The market share of Chinese independent brands and consumer satisfaction both fell. The Volkswagen DSG and Ford Kuga recalls were made following widespread consumer complaints. Vehicle quality issues and recalls made headlines throughout the year.

According to governmental data, automakers announced 113 recalls involving a record 3.2 million vehicles in China in 2012, accounting for 17 percent of total new vehicles sold that year. But the proportion is small compared with that of developed markets. The U.S. for example, announced 586 recalls involving 16.22 million vehicles in 2012, or 112 percent of total sales. Japan recalled 5.95 million vehicles that year, or 11 percent more than the number of new vehicles sold.  

Obviously, lesser recalls do not mean higher quality. What then, is the reason for the huge difference in recall volumes between China and developed markets?

The simple answer is that vehicles that should have been recalled were not due to a variety of factors.

Ling Yun, an owner of Chang’an-Ford’s Kuga SUV, interrupted a launch event held by the company at the annual Guangzhou Auto Show last November because she was dissatisfied with how the company and dealership took care of her vehicle’s broken axle problem, causing uproar at the show. A few weeks earlier, Chang’an-Ford had issued a statement saying that “the Kuga does not have any product design or quality flaws and there are no plans for a recall.”

On December 27 however, Chang’an-Ford announced that it will recall some 80,000 Kugas because the material strength of the vehicle’s front steering knuckle failed to meet worldwide standards. Ling’s actions may have influenced Chang’an-Ford to announce a recall after all.

At the Detroit Auto Show three years ago, a lady made a similar protest at Chrysler’s stands while CEO Sergio Marchionne was presenting to the media. She told the audience that her mother died driving a Chrysler. The U.S. automaker ended up recalling a record 1.6 million vehicles that year.

 

Shortsightedness leads to blunder 

Public data shows that the Kuga was launched to market only half a year after passing the National Development and Reform Commission approval. Insiders say that this brought pressure to parts supply preparation and validation and quality may have been compromised as a result of rushing to supply the parts.

When Volkswagen began production of the 7-speed dry DSG transmission at its Dalian plant in 2007, its first dry DSG-equipped model had not started mass production. The move is obviously Volkswagen’s effort to reflect the importance of and respect for the Chinese market. Yet a few years later tens of thousands of owners complained of abnormal noise, transmission jerk, and in extreme cases, losing power while operating vehicles with DSG transmissions.

Although Volkswagen announced a recall after the issue was exposed on national TV in March 2013, problems still remained: many owners found that their vehicles had the same problems but were not on the recall list, while others found that the problem was not resolved even after changing electronic control unit as specified in the recall.

Surprisingly, the recalls did not impact sales of these two carmakers. In 2013, Volkswagen’s JVs sold 3.04 million vehicles in China, accounting for 18.5 percent of the market. Chang’an-Ford joined the top 10 thanks to a 60 percent jump in sales. In some way, these results were achieved at the expense of consumer interests.

Why is this possible in the Chinese market?

 

Lax laws and poor supervision

According to governmental data, the number of forced vehicle recalls by the Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), the country’s quality watchdog, accounted for only 8 percent of total vehicles recalled in 2012. The same proportion in the U.S. was 24 percent.

Most of the recall statements on the website of AQSIQ are from vehicle manufacturers. Rarely does AQSIQ take the initiative to investigate manufacturers and force them to make recalls.

The Kuga recall, even though it was announced on December 27, 2013, did not actually begin until February 21, 2014. Owners of the affected vehicles were greatly bothered by the delay especially during the Chinese Lunar New Year holidays. The Administrative Rules on the Recall of Defective Automobile Products, does not specify any rules on the timeliness of recalls.

Before announcing the Kuga recall, Chang’an-Ford denied quality problems and asked the public not to believe and spread rumors. It is as if the company concealed the defect. But according to Article 24 of the recall regulations, penalties of one to 10 percent of the vehicle values will be imposed on delay of recall or concealment of defects. Yet Chang’an-Ford was neither imposed a penalty nor supervised by the relevant government authorities.

Volkswagen announced three recalls in 2013 involving the DSG defect. The first was on March 18 and the remedy was to change the electronic control unit. The second was a “supplementary” recall involving 3,863 imported vehicles equipped with DSG due to a “mistake in evaluation of component production.” The third was in November with a remedy of changing the transmission oil from synthetic to mineral.

How can Volkswagen announce several solutions without clarifying which will be effective? Was there anything that was intentionally concealed from the public? Shouldn’t the relevant quality inspection departments conduct a follow-up supervision and inspection?

How can Volkswagen escape from taking any responsibility for its own errors? The quality inspection departments made no comments on this issue which can be inferred that manufacturers can choose the time and number of recalls at will. It is estimated that Volkswagen would save itself about ¥10 billion ($1.64 billion) in costs through selective recalls.

The main reason, therefore, for the lack of recalls in China lies in the ineffective execution and enforcement of recall regulations.

 

Irrational purchase behaviors

Chinese consumers have faith in German cars for their safety, sturdiness and reliability. They are familiar with the “golden” powertrain combination of TSI and DSG and value highly of it. Because of this inherent belief, Volkswagen sales were not affected despite the exposure of the DSG defect.

The failure rate of DSG cars is about 5 percent, higher than mass production standards in the auto industry, which will not be the case in developed vehicle markets.

In the U.S., for example, few Volkswagen cars are equipped with 7-speed DSG transmissions, while the proportion in China is over 20 percent. If the 7-speed DSG is reliable, why is it not equipped in more cars sold in the U.S.?

The Tiguan SUV, powered by the EA888 engine, also faces potential quality issues. One owner of the model presented a technical article of over ten thousand words together with pictures illustrating why the EA888 is problematic with oil leaks, which will result in great danger such as post-collision fire.

This problem has been presented on the complaint platform of AQSIQ. Among the 332 complaint reports received in from January 2-20, 2014, 15 involved the Tiguan. But Tiguan sales accounted for merely 1.1 percent of total passenger vehicles sold last year.

The Tiguan is such a popular SUV model that in many cities, customers have to pay extra just to be able to get it delivered ahead of time. Shouldn’t people reflect to themselves about why they might pay more to buy a Tiguan when they have so many other comparable models to choose from?

Two other vehicles on the complaint platform of AQSIQ are worthy of attention. One is the Volkswagen models equipped with DSG, occupying 5.1 percent of the total complaints after three recalls. The other is the Ford Focus equipped with 6-speed DCT (Dual Clutch Transmission), with a complaint rate as high as 13.6 percent. Chang’an-Ford may have to tackle another vehicle defect problem after the Kuga steering knuckle rupture.

Chinese consumers may have to be grateful to Volkswagen and Ford, which in some way have helped elevate recall regulations and make Chinese consumers more rational. They may one day find that China’s independent brands are just as worthy of consideration as their foreign counterparts.

(Rewritten by Mandy Li and Lei Xing based on author’s article published on auto.sina.com.cn)

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