Honda Recalls SUVs in China

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Dongfeng Honda Automobile Co., the Chinese arm of Honda Motor Co., Ltd. (HMC), is recalling all Siwei CR-V vehicles manufactured from Mar 2, 2010 to Aug 30, 2012. The recall is being made to fix a defective front shock absorber piston rod. According to the General Administration of Quality Supervision, Inspection and Quarantine, the defective rod can break in some cases, leading to safety issues.

Thus, Honda is recalling almost 408,000 SUVs. While product recalls are very common, this recall might hurt Honda as the company, like most Japanese automakers, is trying to regain its market share in China.

Last year, the feud between China and Japan over the ownership of some islands in the South China Sea, significantly affected the sales of Japanese cars in China. As China is the world’s largest automobile market and is growing at a rapid pace, all automakers are vying for a share in the market.

Other Japanese brands, including Toyota Motor Corp. (TM) and Nissan Motor Co. (NSANY), also have a presence in China, along with American manufacturers like General Motors Company (GM). The Japanese manufacturers witnessed a 17.6% year over year increase in sales in China in Jul 2013, according to the China Association of Auto Manufacturers. This is an improvement over 16.5% in June and is also higher than the overall market growth of 10.5% in China.

With the introduction of a stimulus package, including tax incentives for small cars, by the Beijing Government, China beat the U.S. as the largest auto market by sales volume in 2009.

However, the incentives were scrapped last year and the Beijing government imposed quotas on new car registrations in order to control traffic congestions. The scenario is expected to worsen as the Chinese government has increased the number of cities where it is curbing vehicle purchases to reduce greenhouse gases, as revealed by the China Association of Automobile Manufacturers. However, China still remains a key market for automobile manufacturers.

Honda currently carries a Zacks Rank #3 (Hold).

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