Volkswagen recalls 4.8 million cars

German car manufacturer, Volkswagen has initiated a recall of 4.86 million vehicles sold that had been sold in China.

These were cars that were outfitted by faulty airbags manufactured by Takata Corporation.

Background

Takata Corporation is a car parts maker based in Japan. In 2013, Takata airbags were directly linked to a number of deaths and injuries that had occurred across the world. The faulty airbags were manufactured between 2000 and 2008 in Takata's US factory. The first explosion happened to a Honda Accord in 2004 in Alabama, injuring the driver. However, Takata and Honda said it was "an anomaly" and didn't disclose the danger of exploding airbags for years.

A decade later in 2014, the New York Times reported that the company allegedly covered up facts. This resulted in legal action against Takata. The firm accepted the full responsibilities the following year.

In 2017, Takata filed for bankruptcy protection in the US and Japan. It is facing billions of dollars in liabilities over its airbags. Currently at least 16 deaths worldwide have been linked to these airbags as well as 180 injuries.  

German car manufacturer Volkswagen was founded in 1937. It is one of the most successful companies in the sector based on sales of its products. However, it is has been linked to corrupt practices in the recent times.

Analysis

Volkswagen has initiated a recall of 4.86 million vehicles that had been sold in China over airbag problems. A notice posted by China’s consumer inspection bureau has revealed that the recall will be for the cars that were outfitted with airbags manufactured by Takata.

Car manufacturing companies General Motors Co and Daimler AG's Mercedes-Benz announced earlier this year that they will be recalling the vehicles that came with Takata airbags.  It has been estimated that at least 20 million cars in China have Takata airbags currently. Around 37 vehicle manufacturers in China have been affected by the airbag controversy. So far, 24 of those companies have initiated a recall of 10.59 million cars as of June 2017.

According to China's General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), the recall of Volkswagen cars will begin in March of next year and it is expected to continue till 2019. Volkswagen is the largest foreign automaker in China. Last year, the company sold close to 4 million units.

Globally, Volkswagen has been embroiled in a scandal of diesel emissions of its cars. The company has been implicated in a scheme where it reportedly developed cars that could evade pollution rules.

Assessment

Our assessment is that it’s extremely important for all companies especially in the manufacturing sector, to ensure that the supply chain pedigree of all components and parts that are outsourced from OEM vendors are thoroughly checked for every batch. Economic integration across boundaries have helped companies adopt some of the best practices in the world like outsourcing, lean manufacturing and just in time inventory. While these operations have minimized cost and enabled companies to focus on core competencies, they have also stretched enterprises to their breaking point. Without realizing, a company’s best intention to become fiercely competitive can leave it vulnerable. We feel that OEM like Takata are under constant pressure to deliver based on minimum inventory level.