Analysis: VW China's controversial response to DSG gearbox problem

Gasgoo.com (Shanghai) - In late April, several Chinese Volkswagen owners received a text message from Shanghai VW informing them that the warranty for the DSG gearboxes in their vehicles had been extended to cover ten years or 160,000 km. VW's DSG gearboxes have been the subject of much attention in the country, with widespread complaints of problems occurring. Following two meetings with the General Administration of Quality Supervision, Inspection and Quarantine, VW finally decided to extend warrantee coverage for its seven-speed DQ200 and DQ250 dual clutch transmissions.

However, despite having their policies extended, consumers still continue to voice their concerns over the gearboxes, with forums all across the Internet ablaze with debates. In additions to grievances that nothing has been done to fix the problem itself, there have been reports of dealerships preventing owners from taking their vehicles to non-VW repair shops by threatening to void their warrantees. There have also been issues with second-hand VWs not eligible for coverage.

Not long after VW announced the extended warranty coverage, Gasgoo.com (Chinese) conducted a research study on the issue, collecting opinions from industry insiders, analysts and experts. It was found that over 80 percent of those polled disagreed with VW's handling of the matter, with some going as far to criticize the policy as "hijacking owners' rights to choose where to take their vehicles for servicing." The results were compiled into a special report which is briefly summarized below.

"The DSG gearbox problem is the fault of VW," the report states. "By extending warranty coverage, [VW] has not only failed to resolve the issue, but has further burdened [its] customers."

The report calculates that over 70 percent of drivers choose to take their vehicles to repair shops not affiliated with dealerships after their warrantees expire. Older car owners are more likely to go to repair shops for their servicing needs. Price is a key factor behind this trend. For example, total servicing costs for a 2010 VW 2.0 L turbocharged Magotan at a specialized repair shop are a little over 600 yuan ($94.17). Their servicing includes the use of original factory parts. By comparison, costs for the same vehicle at a typical 4S dealership run at least 1,200 yuan ($188.34).

By having the warrantees on their gearboxes extended by eight years, VW owners will be expected to make around 16 trips to official dealerships for servicing. During that time, their vehicles' spark plugs will probably be replaced at least twice, the brake system worked on one or two times, the air conditioning inspected multiple times and shock absorbers serviced once. The total costs for performing all these services at a dealership are at least 30,000 yuan ($4,750.76) greater than having them done at a repair shop. If 70 percent of the approximately one million DSG-equipped VW owners choose to have their vehicles serviced exclusively at affiliated dealerships for the life of their extended warrantee, the manufacturer and its dealers will be able to make earnings of over 20 billion yuan ($3.16b).

In response to uncertainty over whether or not owners will be forced to service their vehicles at affiliated dealerships, VW China stated that the warrantee's original exclusivity clause will only apply to servicing and repair of the DSG gearboxes. Owners will be free to take their vehicles to repair shops for other issues. However, several of the experts quoted in the report doubt VW's earnestness. They believe that without legally binding constraints, the manufacturer may just as well refuse to take responsibility for any dealerships which prevent owners from visiting other repair shops.

Furthermore, VW China's statement may not accurately represent the stances of its two Chinese joint ventures, Shanghai VW and FAW-VW. In a recent survey done by auto.sina.com.cn, dealerships of both JVs claimed that owners must exclusively bring their vehicles to them for servicing in order to enjoy the extended warrantee. Many owners worry that there will be nothing in the future to prevent dealerships from requesting them to come to their outlets for their vehicle repair needs.

Several experts have suggested that if VW really wants to prove its sincerity to its customers, it should establish an oversight committee to ensure that its dealerships don't infringe on the rights of customers to freely choose where to take their vehicles for servicing.

Reports of issues with DSG gearboxes began appearing as early as 2009. In August of that year, the manufacturer announced that it would be recalling 13,500 DSG-equipped vehicles in North America, due to a flaw with the climate sensors in their gearboxes. A recall of domestic manufactured Magotans and several imported Audis followed soon after.

However, the issues that DSG gearboxes had in 2009 are not exactly the same as the ones they are having now. According to Tsinghua University Professor Song Jian, the reason DSG gearboxes previously had problems was due a flaw with their climate sensors. During the daytime, city owners are forced to drive their vehicles relatively slowly for long periods of time, which put significant stress on the gearbox. This led to an increase in temperature, which was picked up by the sensors, which in turn would shut down the gearbox. The driver would then be forced to wait and allow the gearbox to cool down.

"Although the current DSG issue only leads to vibrations [and other] disturbances, and has not caused any bodily or financial harm, it heavily influences the driver's state of mind," Wu Dong, a lawyer with the Shanghai-based M&A Law Firm, said. "At the same time, they have to deal with excessively high maintenance costs and risk of not being able to resell their vehicles," he stated. He adding that, following a full inspection, AQSIQ has the authority to order VW to issue a recall.

However, from the very beginning, VW and its JV partners have refused the possibility of a recall. In a statement on the issue, the manufacturer maintained this position. "The DSG technology has proven to be mature in Germany and other countries," the statement starts, adding that, "the issues that [are occurring] in China are mainly due to domestic driving habits and [high] levels of congestion in [the country's] cities." According to this statement and others, applying a simple software upgrade to the gearbox's computer chip should solve the problem.

"AQSIQ's request does not signify a recall is absolutely mandatory, but rather [they] hope we can find an acceptable solution to the problem," a representative from FAW-VW stated. Meanwhile, an official source from SAIC confirmed that the decision to implement a warrantee extension was made after intensive discussions by the company's shareholders. The source also confirmed that the manufacturer's two JVs' dealerships have been specifically trained to deal with the extended warrantee.

Gasgoo.com CEO Kevin Chen was among those who disagreed with VW's response to the issue. The fact that the gearboxes have issues on Chinese roads is enough to prove they have a real problem, he says, adding that if the issue is not resolved here and now, it may start occurring in other regions. However, he admits that VW has been placed in a somewhat difficult position.

Early in March, VW sent a notification to affected owners to bring their vehicles to their closest authorized dealership for a free software upgrade. The manufacturer also gifted each owner a voucher worth 200 yuan ($31.72). However, soon after it was revealed that the upgrade did little to solve the issue. "The software upgrade had no significant effect," a worker at one FAW-VW dealership commented. Furthermore, while problems in some vehicles were fixed, there were reports of the gearboxes in previously unaffected vehicles having issues after having the upgrade installed.

"The software upgrade alone is not enough to resolve the issue," Lu Jiangang, an automotive expert who previously worked at GM, said. He believes that fixing the hardware is an essential part to resolving the issue. There have been studies done by German organizations in the past predicting the current problems with DSG technology.

The only way to completely eliminate the problem will be replacing the gearboxes entirely. However, costs and compatibility issues associated with this method make it very impractical. Ordering a recall would also be much more expensive than it was in 2009, as there are far more vehicles affected this time around.

What actions VW, its JVs and dealerships, as well as AQSIQ and other national bodies, take will be crucial to the future of DSG technology in China and across the world.