Volkswagen AG VLKAY is recalling 1,950 diesel vehicles in China, per media reports. The automaker decided to recall these vehicles in order to repair engine software related to the violation of emission standards. The vehicles covered under this recall include 1,946 imported Tiguan sport utility vehicles and 4 Passat B6 sedans. Volkswagen is in the process of developing technical solutions to fix the problem and will seek for their approval from Chinese authorities.
Chinese authorities are concerned about Volkswagen’s software scandal and will undertake necessary steps to ensure emission standards are met in the nation. The General Administration of Quality Supervision, Inspection and Quarantine (“AQSIQ”) demanded that the automaker needs to attend to the software issue without further delay. In addition, the environment ministry will be examining Volkswagen’s vehicles.
China is one of the largest auto markets in the world based on the number of vehicles sold. The country has been witnessing soft auto demand in recent times with the change in consumer tastes and preference. A decline in overall business has adversely affected Volkswagen’s results. However, the automaker’s business in the nation was not hurt by the software scandal as diesel vehicles are not very popular in the Chinese market. Nonetheless, Chinese authorities keep a close watch on foreign automakers.
Last month, Volkswagen was in the news after the Environmental Protection Agency (EPA) revealed that the company had developed a software algorithm to deceive U.S emission tests. The automaker admitted that its diesel vehicles are installed with software which makes the engines appear to have low emission levels during tests. According to the EPA, Volkswagen vehicles emit nitrogen oxides, or NOx, at almost 40 times the standard amount. Almost 11 million vehicles around the world, of model years 2009–2015, are fitted with this software. Volkswagen has repeatedly apologized for this issue and promised that it will undertake measures to solve the problem.
Frequent recalls announced by automakers to address safety issues impact consumer sentiment to a great extent. In 2013 too, Volkswagen recalled 384,000 vehicles in China to fix a gearbox problem.
Volkswagen currently carries a Zacks Rank #2 (Buy). Other well-ranked stocks in the same space are Nissan Motor Co. Ltd. NSANY, Daimler AG DDAIF and Visteon Corporation VC. All these stocks sport a Zacks Rank #1 (Strong Buy).
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