China On A Roll Recalling Foreign Cars, Government Says It's Targeting Honda (HMC), BMW, Volkswagen (VOW3) To Protect Consumers

 @angeloyoung_a.young@ibtimes.com on August 28 2013 6:05 AM

It’s been a busy August for China’s product quality watchdog, and at least four major foreign automakers have faced the costly prospect of recalling vehicles in the past three weeks.

Honda Motor Co. Ltd. (TYO:7267) became No. 4 when China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) said Friday the Japanese auto company’s popular CR-V crossover has “piston rod” problems. More than 400,000 vehicles are covered by the recall notice.

The pace of recalls may be picking up this year after Beijing implemented standards it says will boost product safety, but some argue is part of a larger agenda to spur consumption of domestic brands in a market where Chinese buyers flock to foreign vehicles if they can afford them. Earlier this year China banned members of the military from putting official plates on foreign cars. It also reportedly began investigating alleged price gouging by foreign automakers, whose products can cost three times more in China than elsewhere.

Honda does business in China as Dongfeng Honda Automobile Co, a 50-50 joint venture with Dongfeng Motor Group Co. Honda confirmed the recall on its Chinese website.

On Aug. 5, BMW Brilliance Automotive Ltd. – a joint venture between Germany's Bayerische Motoren Werke AG (FRA:BMW) and Shenyang-based Brilliance China Automotive Holdings Limited – said it would recall 143,215 of its cars to address concerns that water could cause power-steering plugs to rust and hinder or disable electric power steering, according to AQSIQ. That recall takes effect on Sept. 23.

On Aug. 13, AQSIQ ordered Jaguar Land Rover to recall nearly 12,000 Jaguar XFs, Jaguar XJs, Land Rover Freelanders and Range Rover Auroras over oil leakage problems. Jaguar Land Rover is owned by Mumbai-based Tata Motors Ltd (NYSE:TTM) and operates in China under a joint partnership with Wuhu-based Chery Automobile Co. Ltd.

On Aug. 16, the Chinese regulator said Changan Suzuki Automobile Co Ltd – a joint venture of Japan’s Suzuki Motor Corporation (TYO:7269) and Chongqing-based Chang'an Automobile (Group) Co. Ltd. – will recall more than 365,000 vehicles due to possible oil leaks.

In March, Germany’s Volkswagen AG (FRA:VOW3) said it would recall vehicles from China after the AQSIQ targeted its vehicles over their gearbox systems. Volkswagen was featured in an annual program on China Central Television highlighting anti-consumer issues. This particular gearbox was in nearly a million vehicles the company sold in China through May 2012.

China’s State Council this year modified the rules for recalling automobiles. The new “Regulations on Defective Automotive Products Recall Administration” widened the liabilities of manufacturers by loosening the definition of the term “defect” as well and broadening the pool of eligible claimants. It also increased penalties up to $1.6 million for failing to voluntarily recall.

The government says the measures are aimed at enhancing product safety, but some view them as part of a drive to get Chinese consumers to embrace home-grown automobiles by making it harder for foreign manufacturers to sell their cars in China. The industry there is dominated by joint ventures with foreign auto giants – especially Detroit-based General Motors Co. (NYSE:GM), which has a dozen joint ventures in China and is the largest foreign player in the market, and Volkswagen, whose Audi brand is very popular among the wealthy and connected.

“This is a clear weakness of the new regulations and is likely to result in market disputes, instead of safeguarding the legitimate rights of Chinese consumers,” said a report late last year by Beijing-based lawyers Paolo Beconcini and Elisa Li of international law firm Carroll, Burdick & McDonough LLP, which advises foreign automakers on product liability and intellectual property in China.

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