On the 20th of March, Volkswagen AG informed that it would recall nearly 385,000 in China, its biggest market, to fix gearbox problems. Everything indicates that the recall will start in April. Certainly, the recall will be a harsh blow for the company as the whole operation may cost it over $600 million.

Recall in China

The statement of Volkswagen AG came after a report of Chinese television which informed that the Europe's biggest carmaker was selling cars with poor gearbox systems which in turn caused problems for some drivers. The company admitted to gearbox problems but at the same time it underlined that drivers were safe as they could remain control over the vehicles, not to mention that there were able to stop them. As it was stated by the Chinese authorities, a fault in the Volkswagen's gearbox might lead to safety issues. However, in May 2012, Harthmuth Hoffmann, a spokesman for Volkswagen AG, stated that similar problems did not pose a threat to a life.

The recall, which is to be run by both Volkswagen AG and its local joint ventures, is expected to start without further delay at the beginning of April 2013. As it has been highlighted by General Administration of Quality Supervision, models, which are to be recalled, were produced between December 2008 and March 2013 including the Golf Variant, Cross Gold, Audi A3, Bora, Octavia and Passat, etc. Despite the fact that the company has not yet estimated the cost of the recall of its cars in China, projections of research firms show that Volkswagen AG will have to pay for the switch of the dangerous gearbox between $480 to around $1600 per car.

Volkswagen AG has underlined that it "will replace the existing gearboxes with improved ones and upgrade the controlling software to the latest version for Volkswagen car owners to eliminate safety concerns. All such services are free."

Volkswagen vs. China

Without a doubt, Volkswagen AG's reputation will be dented by the recall of its cars in China. And China is the most important and the biggest market of Volkswagen AG, therefore it is not surprising that the Europe's carmaker is much concerned over its stance in the world's second economy.

The question remains whether the recall in China will wreck havoc over its plans of expansion in its biggest market. Just few days before the information on the Volkswagen AG's recall, on the 16th of March, the company informed that it planned to more than double its production capacity in China in the next five years. The expansion plans of Volkswagen AG are natural when we take into consideration continuing crisis in the auto market in Europe.

But the Volkswagen AG's expansion in China is not only aimed at offsetting the weakness of the European market and depressing sales in the the home marker, but it is aimed at taking the global sales crown from Toyota Motor Corp. Therefore the Volkswagen AG's recall in China undeniably will at least softly dent its reputation, not to mention that it will probably hamper the company's expansion plans and the plan of winning a bigger market share in emerging markets, including the world's second economy.

Industry Leaders Magazine