Toyota Motor Corp, the second-largest Japanese automaker in China, may face declining sales in the country should government claims of faulty parts lead to recalls, Mizuno Credit Advisory said.

China’s General Administration of Quality Supervision, Inspection and Quarantine said in a statement on Aug 29 that malfunctioning brakes and broken drive shafts in Toyota vehicles led to accidents that “caused many casualties” in the first half.

The agency didn’t say whether it had asked Toyota for a recall and didn’t give details about the accidents in the statement, part of a first-half report on its inspections of products ranging from food to construction equipment.

“The reported problems seem to point to the same parts that were found to be malfunctioning when the recalls in the United States occurred, and this may turn out to be crucial for Toyota,” said Tatsuya Mizuno, director of Mizuno Credit Advisory in Tokyo. “If this case leads to recalls, it could damage their reputation and further depress sales for them.”

Toyota’s sales fell in the world’s largest auto market in the first half after the March earthquake in Japan stopped production and caused a shortage of parts at its Chinese joint ventures. China’s claims follow the automaker’s US recall of millions of vehicles in 2009 and 2010 over claims of defects and incidents involving sudden, unintentional acceleration.

Toyota’s shares fell 1.6 percent to 2,711 yen ($35) on Tokyo trading on Friday. The benchmark Nikkei 225 Stock Average dropped 1.2 percent.

“The local unit is currently investigating the case,” said Keisuke Kirimoto, a Tokyo-based spokesman for the automaker. Hitoshi Yokoyama, a Beijing-based spokesman, said the company is still trying to confirm the facts and declined to comment further.

The quality supervision agency didn’t immediately respond to faxed questions requesting details about the accidents, possible recalls and action on the findings.

In its report, the agency said that locally made Toyota models including the Camry sedan and the Reiz compact, as well as the imported Land Cruiser Prado sport utility vehicles, were involved in the accidents. No other automakers were named in the statement. Tianjin FAW Toyota Motor Co recalled 33,809 Corolla Ex vehicles in China last month, the agency said in an Aug 15 statement.

“It’s odd that they’ve identified problems, but there are no recalls tied to them,” said Michael Smitka, a professor of economics at Washington and Lee University in Lexington, Virginia, who studies Asian manufacturing.

The defects identified “are two issues about which Toyota would be quite sensitive”, because it’s had recalls related to them in the US, Smitka said.

However, those recalls involved light trucks and not the models mentioned in China. Toyota has been expanding rapidly in China, making supply chain management difficult, he said.

China is stepping up efforts to control vehicle quality as rising automobile ownership leads to more road crashes. Traffic accidents rose 36 percent to 3.9 million in 2010, according to the Ministry of Public Security.

Automakers recalled 672,989 vehicles in China in the first half, 628,487 of which were made domestically, according to the quality watchdog. Toyota’s sales of locally made cars in China fell 15 percent in the first half to 316,191 units, according to the China Association of Automobile Manufacturers.

In February, China asked Toyota to explain why it wasn’t included in a global recall, Xinhua News Agency reported at the time. Chinese regulators wanted Toyota to make sure Chinese consumers’ “safety and legal rights” were protected.

“I don’t think the issue will have any major impact on Toyota’s sales in China as consumers are becoming more and more rational,” said Zhang Xin, a Beijing-based analyst with Guotai Junan Securities Co. “Also Toyota has strong partners in China including FAW and Guangzhou Automobile Industry Group and it’s not only Toyota’s interest at stake, but also the Chinese companies.”

Via: ChinaDaily.