What Does a Car Recall in China Mean for VW?

Volkswagen has recalled 384,181 cars in China, including Golf, Magotan, Sagitar and Audi A3 models. Bloomberg reports that the cost of this action to VW will be more than $600 million. The more important issue is whether recalls in China harm car manufacturer reputations as much as they can in more established markets like the United States. If so, VW has a problem much larger than a financial one.

Volkswagen and General Motors Co. (NYSE: GM) have held on as the top car makers in China by sales. Those positions are under assault by other large multinational manufacturers, particularly Ford Motor Co. (NYSE: F), Toyota Motor Corp. (NYSE: TM) and Nissan. The strength and breadth of this competition may allow the newcomers to rattle VW sales, if each company can trumpet its quality compared to VW. That only works until one or more of these car companies has a product recall of its own.

The likelihood of product recalls in any market and of any model may be what helps VW in China in the long term. For now, the recall of nearly 400,000 vehicles is unmistakably a blow to the German company. But the moment GM or Toyota have recall problems, VW's will be pushed further back in the memories of buyers.

The slew of other large companies that sell cars in China, which has been swelled by local firms as well as those from outside the People's Republic, will have recalls. Based on the past four decades of recalls in the United States, every manufacturer will be hit eventually. The probable quality problems with all of these means VW's recall will be all but forgotten fairly soon.

Filed under: 24/7 Wall St. Wire, Autos, China Tagged: F, featured, GM, TM