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China takes aim at foreign car makers

From Fox BusinessMarch 21, 2013

Fox Business (Beijing) – On Wednesday, Volkswagen AG (VLKAY, VOW.XE) said it would recall more than 380,000 vehicles following a critical report from China's powerful state-run television broadcaster last week alleging problems with the transmissions in some of its most popular models. A VW spokesman said it was too early to estimate costs, though some analysts said the recall could run as high as $618 million.

China Central Television this week broadcast separate complaints claiming luxury autos made by BMW AG (BMW.XE), Audi and Daimler AG (DDAIY, DAI.XE) reduced cabin noise and absorbed vibration with materials it said emitted fumes that were harmful to consumer health. CCTV's reports cited test results conducted by Beijing University of Chemical Technology that showed traces of asphalt.

The state-owned broadcaster kept up the drumbeat on Wednesday, parking a reporter outside a Mercedes-Benz auto facility in Beijing. "We will wait outside the company until they have a sincere attitude," she told viewers.

A spokesman for Daimler, which owns the Mercedes-Benz brand, said it immediately began a probe in the matter, but defended its China-made cars saying they use only imported damping materials that comply with regulations world-wide.

BMW and Audi, which is owned by Volkswagen, said they launched their own probes following the complaints. BMW said it applies uniform standards to its auto production world-wide. An Audi spokesman said a laboratory test on Wednesday found no emissions that would impact health.

The broadcasts were tied to an annual consumer rights day on Friday that has become a major event in China and has been used to target foreign brands ranging from Apple Inc. (AAPL) to McDonald's Corp. (MCD) in ways that reflect government policy. CCTV hasn't only broadcast reports on foreign brands; this year it also took issue with autos made by domestic manufacturer, Jianghuai Automobile Co.

The focus on cars comes amid signs of frustration from Chinese officials over the dominance in the world's largest auto market of foreign brands, which enjoy a reputation for quality here.

In December, amid a new government push for austerity amid rising concerns over official corruption, China's president and new Communist Party top official Xi Jinping told government officials to use homegrown auto brands, noting, "officials in foreign countries mostly use cars produced by their own countries unless they don't have production," according to official media.

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