Analysis: Concerns regarding VW's DSG technology continue to appear after recall

Gasgoo.com (Shanghai) - Never before has a Chinese automobile issue received the same amount of media attention as the problem with defective DSG gearboxes in Chinese Volkswagen models has. The problem involved one of the largest foreign manufacturers and two of the largest Sino-foreign joint venture enterprises operating in the Chinese automobile market. After a year-long investigation, the General Administration of Quality Supervision, Inspection and Quarantine finally came to the conclusion that the DSG gearboxes were indeed defective, and ordered VW to begin a full vehicle recall. However, there are many in the industry who believe that the DSG gearboxes are fundamentally flawed and are concerned that the problem will not be completely resolved even with the recall.

In order to better understand the issue, Gasgoo.com (Chinese) recently conducted a week-long survey on the topic. A total of 3,015 industry figures and analysts participated in the survey.

In the first question of the survey, participants were asked to select which of the following three methods VW should take to solve the DSG gearbox issue: allowing its 4S dealerships to install software upgrades for DSG gearboxes, installing new DSG gearboxes or flat out switching the current stick shift DSG gearboxes with new automatic transmissions. 48 percent of respondents answered that replacing the transmission for an automatic one was the best way to completely resolve the problem. 23 percent selected installing another DSG transmission, while only 16 percent believe that a software upgrade would be enough to solve the problem. 13 percent of respondents were undecided.

Although the dual clutch technology used in the DSG gearboxes has been around for a long time, VW has only been using the technology in its passenger automobiles since 2003. Given the young age of technology, it is still considered to be relatively immature. VW has previously issued recalls for DSG-powered models in the US and other markets, further highlighting the technology's immaturity.

VW has been constantly adamant that issues with the DSG transmissions were merely an inconvenience and did not pose a safety risk, and as such kept from issuing a vehicle recall. The manufacturer instead advocated the use of software updates, as well as extending vehicle warranties. However, none of the solutions VW came up with resolved the issue, with vehicle owners continuing to complain about problems with their vehicles. As a result, many doubt that the gearbox problems will be eliminated as a result of this recall.

As for directly replacing the DSG transmissions with new automatic ones, several participants point out that such a solution won't be easy for VW to implement. The manufacturer will need to spend a long amount of time testing suitable transmissions that can replace the DSG gearboxes without any problems. Furthermore, the costs associated with such a solution will be very high for VW.

The DSG gearbox controversy also marks the first time that VW has been forced by authorities to recall its vehicles in China. Prior to the recall, the number of complaints and amount of press coverage the manufacturer received regarding the issue has been unprecedented in the country. How the issue will affect the manufacturer's sales performance has been another topic of debate.

The second question of the survey focused on the DSG gearbox issue's influence on VW's future in China. Participants' responses on the issue were mixed. 38 percent answered that the issue will not seriously affect VW, with its models still being very competitive. 33 percent responded that the issue will only hinder sales of DSG-equipped models, while 29 percent said that it would severely influence sales of VW's entire product line up in the country.

VW's sales in China have increased rapidly over the past three years, doubling from 1.4 million vehicles in 2009 to 2.8 million vehicles in 2012. The manufacturer also reported large growth in its net profits, increasing 37.3 percent from 6.13 billion euros in 2011 to 8.42 billion euros the following year. That growth rate was far higher than the two percent rate VW AG's global business reported.

The DSG transmission and TSI engine technologies have been crucial in the manufacturer's success in the country, with the majority of VW's key models equipped with DSG gearboxes. According to statistics, over 50 VW, Audi and Skoda models are equipped with DSG gearboxes, with their cumulative sales in China exceeding one million units. However the current recall is targeting only a minority of those vehicles, which has aroused suspicion from many in the industry. If VW is still unable to resolve the issue after this recall, the DSG technology's reputation and VW's overall brand image in the country may be tarnished, which may hinder future sales of the manufacturer's products.

Despite the setbacks VW has encountered with the DSG transmissions in China, the manufacturer has stated that it will not abandon the technology. On that note, VW's DSG transmission factory in Tianjin, which the manufacturer has invested a great deal of money in, began production last August. In the survey's third question, participants were asked whether or not VW will reduce investment in the new DSG factory. The majority of participants, 58 percent, agreed that investments will slow down, while 21 percent said that they will be unchanged. The remaining 21 percent were undecided.

VW has remained steadfast in its commitment to the DSG transmission technology, with the manufacturer having invested a total of 927 million euros in constructing a transmission factory in Tianjin. The new factory is set to play a crucial role in developing the new technology in China, with plans for it to begin manufacturing the new DQ380 transmissions next October. Development of the DQ500 transmission is expected to begin afterwards.

Worth pointing out is that the majority of problems reported by vehicle owners are with the seven-speed stick shift DSG gearboxes manufactured at VW's Dalian factory, while the Tianjin factory will focus in producing wet-clutch DSG gearboxes. However, despite the differences between the stick shift and wet-clutch gearboxes, it is unreasonable to expect that the manufacturer will increase production of DSG gearboxes before resolving the current problem.

In the final question of the survey, participants were asked whether or not the current recall will influence the DSG technology's development progress in China. 45 percent of participants agreed with the statement. 31 percent disagreed, saying that the technology's development will be unaffected, while the remaining 24 percent were undecided.

It seems that the recall order has already made an effect on VW, with the 'DCT' typeface in its new advertising materials having been removed. However, dual-clutch transmission technology is still being used by VW's rivals Fiat and Ford. The technology they are using is similar to that used in the slightly more expensive wet-clutch DSG transmissions. Dual-clutch transmissions remain popular among buyers, with a recent Frost & Sullivan study predicting that their market share will reach 11 percent by 2020. China is set to be one of their biggest markets by that time.