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VW car recalls show hazards of rapid growth: analysts

A Volkswagen logo is seen on the front of a Volkswagen vehicle at a dealership in Carlsbad, California, April 29, 2013. REUTERS/Mike Blake
A Volkswagen logo is seen on the front of a Volkswagen vehicle at a dealership in Carlsbad, California, April 29, 2013. REUTERS/Mike Blake

By Andreas Cremer

BERLIN (Reuters) - The growing number of overseas recalls afflicting Germany's Volkswagen shows the perils of rushing for volume as Europe's largest automaker is vying for the world's top spot.

VW, which sells 60 percent of vehicles outside its core European market, said on Wednesday it will pull 26,000 cars off the roads in Australia, the third straight month VW has had to recall models after similar steps in China, Singapore and Japan.

Over half a million autos, including VW's best-selling Golf hatchback and the popular Passat model, are affected as VW aims to fix long-standing problems with seven-speed direct-shift (DSG) gearboxes.

While the actions pale in comparison to the 7.4 million autos Toyota <7203.T> recalled last October over faulty power window switches or the 1.8 million cars Hyundai Motor Corp <005380.KS> and its Kia Motors affiliate took off U.S. roads in April, they coincide with a drastic phase in VW's global expansion.

The Wolfsburg-based group is rolling out a cost-saving engineering platform at factories around the world, is tailoring more cars to specific regions and adding seven more plants in China, VW's biggest market where its two joint ventures will spend almost 10 billion euros ($13.34 billion) through 2015 on plants, products and equipment.

"Manufacturers definitely become more vulnerable (to recalls) the more they're pushing global expansion and stretch supplier networks," said Stefan Bratzel, head of the Center of Automotive Management think-tank near Cologne, Germany.

VW's modular platforms, allowing for a greater proportion of parts to be shared among different brands and models, help as the company sets out to become the world's top automaker by 2018.

Yet, they also make VW more vulnerable if one part turns out to be flawed.

VW on Wednesday disclosed few reasons for the latest gearbox problems, saying "an electronic malfunction" inside the transmission's control unit may cause loss of power.

Analysts have said that VW's problems in China and Japan were due to the hot and wet climate in parts of these countries, the extreme stop-and-go traffic as well as pollution typical of some Asian cities.

Christoph Stuermer, Frankfurt-based analyst with IHS Automotive said VW's gearbox problems arise as the German group is targeting economies of scale by using technology in abundance to offset high development costs.

"These could be effects of an overly centralized strategy," Stuermer said.

VW Group is "arguably" in danger of becoming too big for its own good, Morgan Stanley auto analyst Stuart Pearson told the Automotive News Congress in Paris on Wednesday.

"We've seen what can go wrong with GM in the past," Pearson said. "They probably have five or 10 years ahead of them rolling out their new modular platform, gaining more share and making more money ... but eventually it will become an issue."

(Reporting by Andreas Cremer. Additional reporting by Laurence Frost.)

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