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Volkswagen Recalls for Gearbox Problem in China

F HMC TM VLKAY

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Germany’s Volkswagen AG (VLKAY) decided to recall 384,000 vehicles in China, following media reports that indicated quality problems with the vehicles, especially their gearboxes. The recall would include Sirocco, Golf Wagon, Jetta, Magotan, Touran and Passat models that were imported or manufactured in China between December 2008 and March this year.

Volkswagen revealed that there could be a problem with direct-shift gearboxes, which may lead to power interruption. However, the company stated that the driver could remain in control of the vehicle despite the problem. Volkswagen will repair the gearboxes and install the latest software upgrades in the vehicles free of cost.

China is the biggest market for Volkswagen and the automaker occupies the lion’s share of that market among all other automakers. Volkswagen sold 2.81 million vehicles in the country in 2012, occupying 14% of the market. Sales in year went up 24.5% from 2011.

Volkswagen is the latest automaker that joined the gang of automakers making frequent safety recall of vehicles. Among them, Toyota Motor Corp. (TM - Analyst Report) is the largest, recalling more than 20 million vehicles globally since Nov 2009.

The string of recalls has led Toyota to face numerous personal injury and wrongful death lawsuits in federal courts. Last year, the Transportation Department of U.S. slapped a fine of $17.35 million on Toyota due to late response regarding a defect in its vehicles to safety regulators as well as late recall of those vehicles.

According to the department, it was the maximum allowable fine under the law for not initiating a recall in a timely manner. The latest fine adds to $48.4 million imposed by the U.S. government on the company in 2010 due to late recall of millions of defective vehicles.

Other automakers that recalled vehicles recently include Ford Motor Co. (F - Analyst Report) and a Japanese automaker Honda Motor Co. (HMC - Analyst Report).  This month, Ford Motor announced recall of 7,150 vehicles due to a problem with the child lock on the left rear door. About 5,650 vehicles will be recalled in the U.S. The recall involves redesigned 2013 Escape crossover, which has been recalled multiple times last year.

Honda Motor also announced global recall of 250,000 vehicles due to a problem with the braking system in certain models. The problem lies with the Vehicle Stability Assist control unit in the vehicles that can cause the car to brake when the driver does not press the brake pedal.

Volkswagen AG, a Zacks Rank #4 (Sell) stock, posted an impressive 41% rise in net profits to €21.7 billion ($28.7 billion) in 2012 from €15.4 billion in the prior year, driven mainly by the accounting boost received from the addition of Porsche into the company’s well renowned 12 brands.

Revenues escalated 21% to €192.7 billion ($254.9 billion), driven by impressive vehicle deliveries in the year that topped 9 million units globally for the first time in the company’s history. Vehicle deliveries grew 12.2% to 9.3 million units in 2012, driven by strong demand in North America and Asia, partially offset by weak sales in Europe.
 

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