Southern Weekend: China's 1 trillion yuan investment in the automotive market "Blue Ocean"

It is estimated that in 2010, the production scale of spare parts for the Chinese auto market will reach 800 billion yuan, and the after-sales service market will reach 190 billion yuan.

In 2006, China's auto market entered a steady growth, its competitive characteristics and industry structure have changed, and this change has also brought about a new potential market for investment. The attraction of market investment is shifting from whole vehicles to parts and after-sales services.

Looking for "Blue Ocean"

"The vehicle is king" has passed

After experiencing the “blowout” in 2002 and the rapid advancement in 2003, the Chinese auto industry once reached a historic high, but in 2004 it took a “sudden stop”. After experiencing a sharp decline in 2004, the Chinese automobile industry ushered in a new dawn in 2005, and the growth of the entire industry has been steadily increasing. According to the data provided by the China Association of Automobile Manufacturers, the total number of cars produced in China in 2005 was 5,700,000, an increase of about 13% from last year. China has become the world’s fourth-largest automobile producer after the United States, Japan, and Germany. In 2006, China is expected to replace third-ranked Germany, but there is still a certain distance from Japan. In 2005, the Chinese automobile market accounted for 8.7% of the global market. Its growth accounted for 23.2% of the total growth of the global auto industry. Its important market position has become increasingly prominent.

Based on this, we can conclude that China’s auto industry will continue to develop steadily in 2006 and beyond. At present, the industry has developed to a relatively mature stage. Due to the disorderly investment of local auto manufacturers in the past, investment in complete vehicles was rushed. On the other hand, the profits of this link were diluted.

In 2005, the fierce cut throat price war appeared, OEM manufacturers also faced rising raw material prices, and the competition became fiercer, with more than 100 brands coexisting in an increasingly crowded market. Despite the increase in automobile production and sales in 2005, the overall profit of the industry dropped by 38.4%. The net profit rate fell from 9% in 2003 to 4% in 2005 and is now lower than the average profit margin of the manufacturing industry.

Based on the above analysis, it can be seen that the era of “the vehicle is king” is gone forever. In the past, due to higher profits, the current listed auto manufacturers are mainly vehicle manufacturers. Now that international oil prices remain high, the energy costs of Chinese local automakers are constantly rising, the prices of raw materials are rising rapidly, and the number of auto ownership is rising. China's auto parts and after-sales service market will become a new growth point for future investment.

Focus on emerging investment opportunities

We have reason to believe that according to the development history and development trend of the auto industry in the world, China's auto parts industry and after-sales service industry will show rapid development momentum in the future. As a new and not fully formed market, we believe that the following investment opportunities should fully emerge in the future.

A) Adjustment of automobile industry policies and tariffs forces OEMs to accelerate the localization of parts procurement

In June 2004, China formally promulgated and implemented the new “Automobile Industry Development Policy” (hereinafter referred to as “Policy”), replacing the original localization requirement by at least 40% with the vehicle status management method. Imported parts and components that make up the automobile constitute the characteristics of the vehicle, and must be taxed in accordance with the tariff of the entire vehicle, which causes the proportion of the local vehicle to be lower than a certain percentage of the total vehicle tariff rate. Under the new "Policy", vehicle manufacturers must abandon the CKD production model as soon as possible and localize as much as possible. Under the guidance of the new "Policy," the Chinese government has given a lot of incentives to local company's spare parts research and development.

In 2001, when China joined the WTO, China’s vehicle tariffs and spare parts tariffs were 50% and 25%, respectively. By 2006, they had dropped to 25% and 10% respectively. Therefore, after the introduction of this policy, many manufacturers of CKD production will have to realize the localization of spare parts supply. In addition, parts and components production is originally a high-profit link in the automobile industry chain, so it provides industry strategic investors with Policy advantages.

B) Global procurement will become an opportunity for local OEMs to provide OEM outsourcing opportunities

In order to reduce costs, world-renowned manufacturers have begun to shift their purchasing targets to China, and multinational companies such as GM, Ford and Volkswagen have established purchasing centers in China. We have reason to believe that China will become one of the world's automotive parts manufacturing bases in the globalization of the automotive industry and the globalization of parts procurement.

Therefore, the auto parts industry investment in the future there are more favorable factors, but also a lucrative industry, it will also become one of the main objects of the industry strategic investors for competition. In addition, with the "golden age" of China's automotive industry, auto finance, consumer credit, circulation of used cars, recycling, dismantling and dismantling are all areas where future investors are rushing to snatch.

C) Car service industry will also follow the footsteps of the parts industry

Accelerate the development of auto finance and consumer credit - At present, China's consumer finance credit only accounts for 10% to 20% of the number of people buying a car. This contrasts with the rapid expansion of auto buying demand, even if China's auto credit is to be used for the next 20 years. Only half of foreign countries, the automotive financial industry will also have a market capacity of more than 500 billion yuan. This will surely be an industry that the industry’s strategic investors will focus on.

Second-hand car circulation - At present, the sales of used cars from the United States, Germany, Switzerland, Japan, and Taiwan are 3.5 times, 2 times, 2 times, 1.4 times, and 2 times that of new car sales, respectively, of which US used car profits accounted for 45 percent of total profits. %. China's old car market has grown faster (see Figure 1). Therefore, the industry is still in a stage of growth. The investment prospects of the industry are very promising and the development prospects of the old car sales network are optimistic.

Scrap Recycling and Dismantling—According to international experience, more than 90% of steel and non-ferrous material components on automobiles can be recycled, and the recycling rate of glass and plastics can reach more than 50%. The processed components still have Very high use value. If a scrapped car is dismantled at a price of 450 yuan per ton higher than the national price of 100 yuan, the gross profit margin can still reach 50%, and the net profit rate can also reach about 25%.

At present, the venture capital industry has realized the opportunity of the automotive service industry and acted on it. On August 8, 2006, UAA (United Automobile Club) and Lenovo Investment Co., Ltd. jointly announced that UAA has introduced Lenovo to invest US$8 million in funds. Jointly develop China's auto clubs and automotive after-sales service market. Soon afterwards, in late August, it was reported from the industry that China Automotive Network obtained the second round of strategic stock financing from the Series B held by Goldman Sachs. Easy Carnet also revealed to the media on September 14 that it has just completed the second round of international private equity financing and has received a total investment of US$10 million from venture capital agencies in the United States and Japan. There are 51 auto company, love card car network, car alliance network, China's auto after-service market has been recognized by the international venture investment institutions.

Anatomy of "Blue Ocean"

Automobile parts and after-sales service industry "money" view can be seen

China's automobile industry chain mainly includes auto parts industry, automobile trade, and automobile manufacturing. Kearney has conducted surveys on the financial status of listed companies in the global automotive industry in 103 countries, and analyzed the cash flow return-on-investment (CFRIC) of the three links in the automotive industry chain. Parts industry is 13%, automobile trading industry is 10%, and automobile manufacturing industry is only 5%. Therefore, in terms of mature markets in the world, we believe that vehicle manufacturing is an industry with high investment and low returns. Upstream and downstream businesses in the automotive industry: component manufacturing, automobile distribution, and automotive services. The overall profitability of automotive finance is better than that of the automotive manufacturing industry.

According to the data provided by the China Association of Automobile Manufacturers, the overall vehicle-to-parts scale in 2005 was 1:0.66. According to the standards of the international automotive industry, the ratio of finished vehicles to parts and components should be around 1:1.7. The ratio will gradually adjust to a reasonable ratio. Under this premise, even if the entire vehicle market does not grow, the Chinese parts and components market will also grow at a rapid rate. According to forecasts of Taishin Capital and Shengfu Capital, by 2010, China will increase its share of the existing parts supply industry by 165% to a scale of about 800 billion yuan, making it the world's largest investor.

Another opportunity that is also worthy of attention is that in the mature international automobile market, 50%-60% of profits are generated in its service sector. Therefore, following the rapid development of China's auto industry, a huge after-sales service market for cars - people call it "auto aftermarket" is forming. General use of vehicles for 4-9 years, its after-sales service market is the largest. Therefore, from now on, China will enter a period of rapid growth in the “auto aftermarket”. It is estimated that the scale of China's automobile after-sales service market will reach 190 billion yuan in 2010, ranking second in Japan after Japan. At the same time, even assuming that the proportion of Chinese consumers buying cars through bank credits will only reach one-half of the average overseas level in the next 20 years, the Chinese auto finance industry will also have a market capacity of 525 billion yuan.

Component Industry Trend Analysis

We believe that the Chinese auto parts industry will transition to the following areas: A) The parts market will transform in an orderly manner, and the proportion of investment will gradually enlarge the export products of local manufacturers to enter the OEM market from the aftermarket parts market, starting from low value-added products. The transformation of high value-added products has changed from disorderly export to orderly, especially since some independent brand products have entered the international procurement system, and the technical level of export products has also greatly improved. From the perspective of export development of parts and components, it fully shows that the international competitiveness of China's auto parts industry has gradually increased.

From the perspective of investment in fixed assets in the automotive industry in recent years, the proportion of investment in the auto parts industry is also below 30%. In developed countries in foreign countries, the investment ratio of complete vehicles and parts is generally 1:1.1-1.7, that is, the investment in parts and components is more than 10%-30% of the investment in the entire vehicle. Obviously, at present, China's spare parts industry is the foundation of auto vehicles, and investment is insufficient. We believe that it is this imbalance in investment and demand that makes the field less competitive and has a more relaxed living environment.

B) The industrial profit point will shift to the production of key components

The production of key parts and components is a valuable link in the value chain of the automotive industry, and has become an important direction for the extension of the industrial chain of multinational vehicle manufacturers. According to statistics from the China Association of Automobile Manufacturers, the sales revenue of domestic auto parts enterprises in 2003 was 300.3 billion yuan, and the sales revenue of vehicles was 457.6 billion yuan. The value of parts and components production process is evident. Due to the relatively loose living conditions and rapid growth in demand, the production of key components has become one of the lucrative links in the value chain of the automotive industry.

C) After-sales service After the transition from the automobile sales network, the shift in value from the manufacturing link to the distribution link has become a trend in the past 20 years. Before China's accession to the WTO, foreign investment in the service industry was severely restricted. The sales companies of domestic automobile joint ventures were controlled by the Chinese. These sales companies bought products from manufacturers and sold them to distributors in various places. With the opening up of automotive service trade, multinational auto companies will expand their dealer network and improve after-sales service quality. The past networks have also transformed from dealers to auto after-sales service providers.

D) Financial Services have Future Profits Explosive Growth Potential The value of the financial services chain is particularly evident in the special nature of the automotive industry. For example, Ford Motor Company International has the largest financial services company and car rental company in the automotive industry, and General Motors Financial Corporation is also An important source of group profit. Judging from international experience, auto finance companies are not only large in scale, but also have a wide range of operations. This enables the operation of auto finance business to bring together the interests of various partners in the auto industry and its related service value chain, and to Substantial impact. Due to the restrictions on private capital and foreign investment, domestic commercial banks are the main agencies that run auto financial services, accounting for about 95% of all auto loans. The role of professional auto financial service institutions in China has not yet been played. However, as China's financial markets and auto service trade policies continue to open up, the value chain of multinational auto companies is extending to auto financial services.

The choice of capital

How to screen potential investment goals

Relative to the international market, China's auto industry is still relatively young, but each development stage is often the same as other international markets, there is a fixed pattern. Through research, we propose reference suggestions on how to choose investment objectives:

1. China's auto OEMs should have the following system

To achieve decisive advantages in this field, local vehicle OEMs need to first optimize the strategic layout in the Chinese market. The competition in the auto industry market is a competition between systems. We also appreciate the awareness of building a complete system from the outset. And the ability of the vehicle manufacturer. What ultimately determines the value of the company is its operational execution.

2. Successful auto parts and after-sales service providers should have the following characteristics

For auto parts and after-sales service providers, whether it can have a good development depends on whether it can successfully play its own role in the industry chain.

Strong R&D task outsourcing and joint development capability or potential of vehicle manufacturers

Global auto companies will outsource the development of product assemblies or subsystems, which account for about 50% of the value of their new products. It is estimated that this proportion will increase to 70% in the next 10 years. Nowadays, joint development has not only limited to automakers and The cooperation of the first-tier suppliers has also gradually expanded to raw materials and secondary suppliers, and the future joint development will continue to expand in scope and depth of cooperation.

Chinese component suppliers can pay attention to the improvement of R&D capabilities and manufacturing processes, upgrade product quality, and integrate into the global automotive industry supply chain, especially if they can keep up with the pace of OEMs in R&D task outsourcing and joint development. In the future competition will be better benefited from the adjustment of the industrial structure.

Traditional sales agents should have integrated sales channels, optimized cost structure and efficient operation

Taixin Capital and Shengfu Capital Research believe that the current 4S shops in China are more of the brand orientation of cars. Basically, a network only maintains one brand of cars. In the past, the sales channel of each car brand was self-contained, while the imported car had another sales channel. The “number of networks coexisted” has always been an obstacle to the development of car sales. By integrating sales channels, you can reduce sales costs and increase sales efficiency. In the United States, a car sales center often represents multiple brands at the same time. The traditional channel dealers can integrate their own car sales networks, improve service flexibility, and increase their after-sales support capabilities for various models, so as to gain market initiative. The monopoly of the car channel brand will undoubtedly increase the voice of the entire vehicle manufacturer in selecting distributors and controlling the number of distributors, and enhance their ability to control dealerships, but this is not good for distributors.

Car repair service network must have strong "professional"

There are several major factors that consumers demand for services: the first is convenience, the second is the trust of a brand, and the third is the requirement for professionalism of suppliers. A survey released a few days ago showed that consumers’ awareness of the maintenance and maintenance of automobiles and parts has been increasing, and the professional requirements for services have also become higher and higher. With its specialization, convenience, and ability to provide a variety of value-added services, the automotive professional services retail network has always dominated the foreign automobile and parts markets with its irreplaceable advantages. With the growth of China's car ownership, a professional service retail network such as Michelin Chijia will become an important direction for the development of domestic auto parts after-sales service market.

The professional service network can provide auto parts products and services across different brands of vehicles. All kinds of vehicles can be maintained, and consumers need to have more choices. The professional service network of franchise operations serves as a retail service outlet that is very close to consumers. If the speed of popularization is relatively large and the scale is relatively large, it can provide quick solutions to problems related to maintenance and minor repairs, and there will be opportunities for popularization.

Link one:

Capital Perspective: Considerations for Strategic Investment in the Industry

The next few years will be the key years for auto parts manufacturers to establish their market position. Investing in companies that take the initiative will become one of the ways to share this cake. We believe that companies with the following core competencies will become the leaders and the largest beneficiaries in China's auto parts and after-sales service industries. It will be easier to get the attention of industry strategic investors.

Has strong research and development capabilities and core technology update capabilities

As a technology-intensive industry, the auto parts industry needs manufacturers to have strong R&D capabilities, hardware equipment and core technologies. Otherwise, as a participant in this field, they will not be able to gain an advantage in the competition. Excellent research and development capabilities and technical equipment can enable manufacturers to have higher gross margins, more product portfolios and a more solid customer base.

Firms with a solid customer base

The automobile is a very complicated product, and its safety is placed in a very high position. Due to this particularity of the automotive industry, automobile manufacturers often use one or more products or supply for a long time. The company has established long-term cooperation alliances and even joint ventures to ensure the stability and reliability of the quality and quantity of products supplied. Therefore, those companies that can have a reliable customer base and establish a strategic alliance with their customers will be able to gain an advantage in the competition.

Companies with better profitability and financial control

Under the fierce competition date of auto vehicles, as the upstream industry, the profit rate of the auto parts industry also faces a trend of being compressed. Under this condition, the auto parts industry can ensure the profitability by integrating the supply system and strengthening the internal control system. The security of property and property will be a new challenge for Chinese domestic manufacturers. Taishin Capital and Shengfu Capital believe that those companies that have started to establish and improve their internal control systems will gain competitive advantage. ?

Can accurately determine the value distribution trend

Changes in the distribution of value have led to the redistribution of industry value, which has led to the emergence and transfer of competitive advantage among different companies, so that the size of the enterprise and market share are no longer able to provide profitability and value protection as before, and the rules of the game for obtaining competitive advantages have taken place. Variety. For Chinese domestic manufacturers, correctly judging the trend of value distribution, looking for industry growth potential and its value distribution pattern, finding the maximum profit area and value stream will be the key to success, and it is also the key point for industry investors to assess the future development potential of the company. one.

The ability to effectively identify value transfer paths becomes the key

Values ​​shift from visible hardware resources (pursuit of efficiency) to invisible service resources (value creation), and the ability of Chinese domestic manufacturers to cope with challenges brought about by value transfer has become critical. We believe that those companies that have effectively grasped the path of value transfer and studied how to gain the advantage in the operational level and gain revenue based on the path of industry value transfer can be more favored by industry investors.

Enterprises with the ability to integrate industrial value chains will be favored

The value chain of China's auto industry is in a discrete state. The industry focuses on the manufacturing industry and lacks the ability to integrate services, trade, logistics, and finance in the downstream of the value chain. How to integrate the capabilities of the various aspects of the value chain becomes the key to the future survival, and the future will undoubtedly become the leader in the industry.

Focus on core value links

The general trend of value transfer is for companies to focus their resources and capabilities on areas that they are best at, in order to cultivate and maintain their core competitiveness, rather than simply pursue expansion of their scale. Therefore, after identifying and discovering the core value links in the value chain, Chinese local manufacturers should concentrate their resources on this link, nurture their core competencies, build a concentrated competitive advantage, and use this core link's competitive advantage to gain access to other Linkage initiative initiative and leverage effectiveness of resource integration. Companies with such capabilities will become the dominant players in the industry chain and gain the transfer of profits or values ​​in other sectors, so that they can obtain more support from the capital market.

Link two:

Phenomenon: The Big Three in the Pearl River Delta Settles in the Parts Market

□ Inagaki Inagaki (Head of Research Department, Mitsubishi UFJ Securities Hong Kong Co., Ltd.)

Taking the Pearl River Delta, an important automobile manufacturing base in China, as an example, with the booming domestic vehicle market in China, the scale of component manufacturers and raw material manufacturers is also expanding day by day. At present, the automobile industry structure in the Pearl River Delta is undergoing major Variety.

In 1998, Honda (Guangzhou Honda) entered the Guangzhou market. Subsequently, Nissan (Dongfeng Nissan) and Toyota (Toyota, Guangzhou) also settled here, forming the trend of the accumulation of the three largest Japanese companies. Honda's production in the export market in China and the production of the second plant have all been launched. Together with Nissan's Huadu Plant and Toyota's Nansha Plant, it is estimated that around the year 2008, Guangzhou will form a scale of one million cars. By then, the automotive market in South China will compete with Shanghai's Volkswagen and General Motors, which together constitute China's two major automotive markets.

Affected by the automobile industry, related materials and parts manufacturing companies have rapidly emerged in southern China. For example, in Yonghe District, Guangzhou Economic and Technological Development Zone, near Honda, there are more than 40 Japanese-funded enterprises with auto parts as the center. Nissan has 30 factories, and Toyota's Nansha has 15 companies that mainly supply raw materials. In addition, Foshan and Zhongshan also gathered a large number of Japanese manufacturers of parts and components.

Faced with the auto industry's need to expand production scale and increase vehicle types, the tide of parts and components industry has set off a new wave. In May 2006, Toyota officially started to develop two or three raw material supply companies. In addition to the raw material production companies, Honda and Nissan also started to take shape in the second and third raw material production companies. At the same time, in order to overcome the “environmental”, “safety”, and “electronic” issues that have always been the automotive industry, JFE (Guangzhou JFE Steel) and other new material manufacturing companies, as well as Dongguan, Shenzhen, Huizhou, etc. in the eastern part of the Pearl River Delta. Companies that have emerged as electrical and precision instruments have also begun to join the automotive industry.