April 3, 2018 / 9:07 AM / 6 months ago

Honda's China sales fall in March as quality issue threatens growth run

BEIJING (Reuters) - A quality issue in China is threatening to put a stop to the growth run Japan’s Honda Motor Co Ltd has been on in the world’s biggest auto market for the last few years.

FILE PHOTO: A member of staff cleans Honda Avancier SUV after it was presented during Auto China 2016 auto show in Beijing April 25, 2016. REUTERS/Kim Kyung-Hoon/File Photo

Honda’s sales in China fell 13.0 percent in March from a year earlier to 97,587 vehicles, the company said on Tuesday.

Sales volume during the first three months of the year totaled 300,826 vehicles, down 2.3 percent from the same period a year earlier.

The volume downturn follows a significant sales increase seen by the Tokyo automaker in China since 2015, helped by popular sport-utility vehicles (SUVs) and more recently by a redesigned Civic.

Last year, Honda’s sales volume rose 15.5 percent from a year earlier to 1.44 million vehicles, compared with the 3 percent growth of the overall market. Honda’s China sales were up 24 percent in 2016 and 32.5 percent in 2015.

The quality issue Honda has been dealing with in China since the outset of this year is a cold-climate engine problem caused by an unusual amount of un-combusted petrol collecting in the engine’s lubricant oil pan.

Honda in early March decided to halt new sales of its CR-V and noted the company might have to do the same with the Civic after a Chinese quality watchdog rejected the automaker’s plan to recall 350,000 of the cars to fix the problem.

The CR-V sales termination began in early March and lasted throughout the month.

Sales of the compact SUV in March totaled just 916 vehicles, compared with the 14,360 Honda sold a year earlier.

Honda did not stop selling the Civic in early March, but its volume also fell sharply – down 16.5 percent to 13,586 vehicles.

“This type of quality issue normally only has a temporary effect on sales. Honda in particular has a high reputation for quality. I don’t see that reputation being permanently damaged by this particular quality issue in China,” said James Chao, Asia-Pacific chief of consultancy IHS Markit Automotive.

“However, there will be some short-term pain as they figure out a solution,” Chao said.

According to two company officials familiar with the matter, Honda had planned to address the engine issue by recalling the CR-V from late February and the Civic from early March.

But the quality watchdog has since maintained Honda “needs to do more to make sure its solution works in real-life driving,” said one of the officials. It was not immediately clear when Honda would be allowed to go ahead with the recalls.

The two Honda officials spoke on condition of anonymity because of the sensitivity of the matter. The watchdog, China’s General Administration of Quality Supervision, Inspection and Quarantine, did not respond to a Reuters fax requesting comment.

The engine issue in some cases caused a strong odor of fuel inside the car, and in others the car’s check-engine light came on. Honda had planned to resolve the issue by updating the engine’s fuel injection control software. Honda officials said there had been no reports of accidents.

Reporting by Norikiho Shirouzu;Editing by Christopher Cushing

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