Toyota May Face Major Recall in China

Toyota’s declining market share in China may be further eroded by the possibility of a major recall based on defects that have contributed to casualties during the first half of 2011.

Malfunctioning brakes and broken drive shafts in Toyota vehicles were involved in accidents that “caused many casualties” during the first six months of 2011, said China’s General Administration of Quality Supervision, Inspection and Quarantine in an August 29 statement that was part of the agency’s report on a wide range of products from food to construction equipment.

The statement gave no details on specific accidents and did not mention whether Toyota had been asked to conduct a recall.

“The reported problems seem to point to the same parts that were found to be malfunctioning when the recalls in the United States occurred, and this may turn out to be crucial for Toyota,” said Tatsuya Mizuno, director of Mizuno Credit Advisory in Tokyo. “If this case leads to recalls, it could damage their reputation and further depress sales for them.”

Locally made Toyota models including the Camry sedan and the Reiz compact, and the imported Land Cruiser Prado sport utility vehicles were named in the report as having been involved in the accidents. No other automakers were named in the statement. Tianjin FAW Toyota Motor Co recalled 33,809 Corolla Ex vehicles in China last month, the agency had reported in an August 15 statement.

Toyota had recalled millions of vehicles in the U.S. in 2009 and 2010 after sudden, unintentional acceleration were blamed in numerous accidents, including some that were fatal. The U.S. recalls involved light trucks and not the models mentioned in China. In February China had asked Toyota to explain why it wasn’t included in a global recall, Xinhua News Agency reported at the time. Chinese regulators wanted Toyota to make sure Chinese consumers’ “safety and legal rights” were protected.

A Tokyo based Toyota spokesman said the local unit was investigating the complaints while the Beijing-based company spokesman declined comment, saying it was still trying to confirm facts.

The possibility of a recall could further shrink Toyota’s China sales which are already suffering decline after March 11 earthquake and tsunami in eastern Japan had cramped production due to parts shortages at its local joint venture plants.

China is responding to a rise in auto accidents by boosting vehicle quality enforcement standards. In 2010 traffic accidents jumped 36 percent to 3.9 million, according to the Ministry of Public Security.

Of the 672,989 total vehicles recalled in China during the first half, 628,487 were built domestically, according to the quality agency. Sales of locally made Toyota cars in China fell 15 percent in the first half to 316,191 units, according to the China Association of Automobile Manufacturers. Much of that decline is attributed to parts supply-chain bottlenecks resulting from the March 11 earthquake and tsunami in eastern Japan.

“Toyota has strong partners in China including FAW and Guangzhou Automobile Industry Group and it’s not only Toyota’s interest at stake, but also the Chinese companies,” said Zhang Xin, a Beijing-based analyst with Guotai Junan Securities Co.