VW Golf named ‘world car of year’ but not all good news for German brand

Volkswagen's new Golf has been named "world car of the year" at the New York auto show this week, adding another accolade to the seventh generation of the family hatchback. Earlier this month it picked up the prestigious European car of the year title and has amassed several regional and national awards as well.

However, it has not all been good news for the motoring giant this week, with news that it is recalling 384,181 vehicles in China. The problem relates to defective gearboxes that may result in a loss of acceleration. The recall is estimated to cost the firm more than $600 million.

While Volkswagen declined to comment on the financial toll, research firm LMC Automotive estimated the replacements will cost between 3,000 yuan ($483) to 10,000 yuan per vehicle.

The move is a blow for Volkswagen, which counts China as its biggest market, as the company sets out to become the world's largest automaker by 2018.

It also comes less than a week after state broadcaster China Central Television featured Volkswagen customers in China complaining about abnormal vibrations, loss of power and sudden acceleration in cars equipped with the company's proprietary gearbox technology. "It's always reputationally damaging to have to deal with an issue that plays out in the public's eyes," said Bill Russo, president of auto consultancy Synergistics Ltd. "Will they take a hit? Of course. The issue is how can they recover from that and how quickly can they recover."

The recall covers 21 types of vehicles including versions of the Scirocco, Bora, Touran, Octavia, Passat vehicles produced as far back as 2008 and as recently as this month, according to the state inspector's statement.

For Volkswagen, which sold four of China's top 10 selling cars last year, complaints about its gearbox system in China aren't new. In May, the German carmaker agreed to extend the warranty for the transmission technology to 10 years, compared with the standard warranty of two years, to address consumer concerns.

China's quality inspector said it began investigating complaints related to faulty Volkswagen gearboxes in March 2012. Two months later, the company extended its warranty for the transmission system after several rounds of talks with the regulator, according to the statement.

China introduced recall laws this year giving the watchdog broader powers to order investigations and impose fines on companies that fail to call back faulty products in a timely manner. The nation's legislature approved plans last week to expand the authority of the food and drug regulator amid growing public discontent over quality and safety.

- additional reporting: Bloomberg