Asbestos Recall in Australia Clouds China Automaker Plans

An Australian recall by China’s two biggest car exporters for potential cancer-producing asbestos parts may threaten plans by Chinese automakers to expand into the U.S. and Europe amid intensifying competition at home.

Australia was to be the “testing area” for Chinese carmakers looking to enter larger markets and the recall has dealt a blow to those ambitions, according to Dunne & Co. Great Wall Motor Co. (2333) and Chery Automobile Co. recalled 23,000 of their vehicles sold in Australia after authorities found asbestos in some models.

“It’s a significant setback for the individual companies and development of the industry,” said Michael Dunne, head of industry researcher Dunne & Co., in a telephone interview yesterday. “Chinese car companies will continue to push overseas, but you can bet that other countries that they are moving into, or are exporting to, are going to take a closer look on what’s on offer.”

The use of asbestos in exports raises concerns about the quality and safety of products made in China, which has struggled with repeated health scares that include excessive lead found in toys, melamine-tainted milk and pet food killing children and dogs. Vehicle exports from the country may rise about 50 percent this year, extending record shipments in 2011, according to the official trade chamber.

Great Wall led shares of Chinese automakers lower in Hong Kong yesterday as the discovery of asbestos -- banned in 55 nations because of the fiber’s links to cancer and respiratory illnesses -- undermines the nation’s carmakers in their push to build their brands in overseas markets.

Home Pressure

Passenger-vehicle deliveries trailed analysts’ estimates for the first time in five months in July, according to data from the China Association of Automobile Manufacturers. Domestic brands have been the hardest hit in the market slowdown, facing higher levels of sales pressure than international brands, Westlake Village, California-based researcher J.D. Power & Associates said.

Algeria, China’s second biggest export market for cars in 2011, prohibits the use of asbestos for most uses, according to the International Ban Asbestos Secretariat’s website. Chile, Uruguay and Egypt are others among China’s top 10 auto export markets last year that have similar bans.

Great Wall plans to double its number of overseas assembly plants to 24 by 2015 and raise total manufacturing capacity to 500,000 units a year, it said in April. The company plans to export 100,000 vehicles this year, or 18 percent of its expected total deliveries, Chairman Wei Jianjun said in March.

Chery sold a record 160,200 units overseas last year, a 73 percent increase from 2010. In the first six months of this year, the company exported 94,494 units, on track to meet its full-year target of 170,000 units, according to a statement on its website.

Overseas Push

The automaker currently sells to more than 80 countries and regions and has 16 manufacturing bases abroad. Chery invested $400 million in a plant in Brazil, which starts operating in late 2013 with an annual production capacity of 150,000 units.

Shang Yugui, a spokesman at Great Wall, the biggest maker of sport utility vehicles and pick-up trucks in China, said the company became aware of the issue in April and then stopped using the parts in question. The components were used in some vehicles sold in China and overseas markets, he said, without giving more details.

“We need to reflect at Great Wall,” Shang said. “We became careless after our repeated checks showed that the asbestos parts won’t cause harm to the human body.”

Mistaken Use

Chery said workers mistakenly used a wrong batch of parts that wasn’t meant for cars to be exported to Australia. The automaker hasn’t discussed recalling vehicles with similar asbestos parts in markets outside of Australia, spokesman Huang Huaqiong said yesterday. The company will issue recalls if the respective authorities require them, Huang said.

The recall in Australia, which has identical safety standards to Europe’s, will tar the consumer perception of China-made cars and sets back the progress made by Chinese automakers in recent years, according to CIMB Securities (CIMBI) HK.

“This will change consumers’ mindsets toward Chinese cars,” said Cheam Tze Shen, auto analyst at CIMB Securities HK. “After all, better to be safe than sorry with regards to health issues especially if the vehicle is designated as your family car.”

Consumers should avoid “do-it-yourself” maintenance that may disturb contaminated engine and exhaust gaskets, the Australian Competition and Consumer Commission said in a statement yesterday.

Australian Recall

Ateco Automotive Pty, the Chinese carmakers’ distributor in Australia, had received written assurances from the two manufacturers that no parts of the vehicles contained asbestos before imports began from Great Wall in 2009 and Chery in 2011, Daniel Cotterill, a public affairs official, said by phone from Sydney yesterday.

The recall represents the majority of the Chinese companies’ vehicles brought into the country since imports began, Cotterill said, without giving a precise number.

A total of 15,355 Great Wall and 1,822 Chery vehicles were sold in Australia during 2010 and 2011, according to the nation’s Federal Chamber of Automotive Industries, an industry group.

Ateco told Chery and Great Wall dealers to halt sales of the affected vehicles, according to the ACCC statement.

The discovery was “an absolute disgrace,” Barry Robson, president of the Asbestos Diseases Foundation of Australia, said by phone from Sydney.

“There is a complete ban on asbestos products here in Australia,” he said. “They’ve got to remove those cars off the road. Not every brake mechanic or car mechanic will know about this.”

Recall Models

The recall involves Great Wall’s SA 220, V240, X240, V200 and X200 models; as well as Chery’s J11 and J3, according to the ACCC’s website.

Asbestos is the name given to six natural fibers about 1,200 times smaller than a strand of human hair that can be woven like fabric. The strands have been used for the last 140 years in construction and their resistance to fire, heat and chemicals have also helped them gain uses in automaking. Evidence of the harmful effects of asbestos began appearing a century ago and national bans were first enacted in the 1970s.

All forms of asbestos are carcinogenic, according to the World Health Organization. Fifty-five countries including Japan and all members of the European Union have banned asbestos in factories, buildings and car parts. The U.S. Environmental Protection Agency selectively bans the material in products such as spray-on paint and pipe insulation.

“If the report was that the power windows weren’t working, or if air conditioners don’t work in Australian summers, that’s one thing,” said Dunne. “But when it’s safety, that’s a no- no.”

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net; Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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