Strengthen the parts system to solidify the cornerstone of the automotive industry

(Automobile Report reported on June 30, 2006) The development of China's auto industry and the improvement of its own development level must rely on a strong auto parts industrial system.

On June 23, 2006, the China Association of Automobile Manufacturers and the Department of Industrial Transport Statistics of the National Bureau of Statistics released a list of "China's Top 100 Auto Parts in 2005" in Beijing.

Of the top 100 parts and components companies released this time, 22 have sales revenues exceeding 2 billion yuan, accounting for 22% of the total number of 100 companies, and sales revenue accounted for 61.44% of the total sales revenue of the top 100 companies, of which sales revenue exceeds 100%. There are 4 million yuan enterprises.
Despite the announcement of the top 100 parts and components companies, in 2005 a total of 217.577 billion yuan in sales revenue, an increase of 21 billion yuan over the same period, an increase of 10.7%, accounting for 63% of domestic 4447 auto parts companies above the scale of sales revenue, Although the overall level of development of the auto parts industry along with the vehicle has greatly improved, it still lags behind the development of the vehicle.

It is a well-recognized fact that the development of China's auto industry and the improvement of the auto industry's independent development level must rely on a strong auto parts industrial system. “In this case, comprehensively enhancing the competitiveness of the auto parts industry, promoting the optimization and upgrading of industrial structure, and improving the development capacity will play an important role in the process of China’s move from a large automobile manufacturing country to a strong automobile manufacturing country.” Jiang Lei, executive vice president of the Automobile Industry Association said.

Improve the competitiveness of domestic and foreign markets

At present, China's auto parts and components industry has basically got rid of the pattern of “large quantity, small scale, and poor quality” in the past. The level of manufacturing has increased significantly and it has become a supporting system for domestic auto manufacturers.

One noteworthy phenomenon is that in this “top hundred” list, there are 44 domestic-funded enterprises and 54 foreign-invested enterprises. According to statistics, the number of international parts and components companies that signed a new contract to invest and cooperate in China in 2005 reached more than 90, which was 3.2 times that of 2004. The internationally renowned parts and components manufacturers such as Delphi, Bosch, Visteon, ZF, Denso, and Germany Companies such as Nasdaq, TRW, Johnson Controls, Lear, and Eaton have established joint ventures or wholly-owned enterprises in China.

The distribution of multinational parts and components companies to the Chinese market shows the potential of the Chinese market on the one hand, and challenges the local auto parts companies on the other. Although the parts and components industry has achieved remarkable development, the structural contradictions existing in the industry, the technical level, the gap between scale and strength and foreign investment, and the arduous nature of independent development still exist.

First of all, there are too many companies, but the overall scale is too small. Most companies do not have the ability to independently develop and lack the competitiveness in the domestic and international automotive market.

In 2005, Bosch’s sales revenue was 49.759 billion US dollars, Delphi was 28.7 billion US dollars, and China’s leading auto parts manufacturer Wanxiang Group’s sales revenue was 2.5128.8 billion yuan. According to incomplete statistics, compared with the top 100 suppliers of auto parts in the world, the sales revenue of China's top 100 parts and components companies differ by more than 10 times.

Secondly, foreign investment in China’s auto parts and components continues to increase. They have mastered the core technologies of some key components and products and monopolized the market for OEMs. “Foreign-invested Chinese joint ventures are undergoing three transformations: the transition from equity participation to controlling, from joint ventures to sole proprietorship, and from ownership to market transition to monopoly markets.” Jiang Lei said that the proportion of foreign investment in parts and components companies established in China In the increase, the profits of foreign parties are improving.

Third, the measures formulated by China to curb the import of non-tariff barriers to vehicle imports have been criticized. There has been a high demand for international anti-dumping investigations on Chinese auto parts, and a period of high trade disputes has come.

Build a strong component support system

The “Eleventh Five-Year Plan” period is an important period for the development of the parts and components industry. It is necessary to seize the strategic opportunity of the country to support independent innovation and the opportunity for the transfer of the international automobile industry, carry out necessary strategic adjustments, and promote the optimization and upgrading of industrial structure and product structure. The development capability has been improved to meet the needs of the development of the vehicle and the needs of the market.

The importance of the auto parts supply system is well known. Then what direction should the parts and components industry develop during the 11th Five-Year Plan period?

The first is to strive to become an international auto parts procurement center.

“At present, the international community is facing a new round of automobile industry transfer, realizing a shift from local and regional production to global production and forming a new batch of industrial clusters,” said Jiang Lei.

According to statistics, multinational companies plan to purchase 50 billion U.S. dollars worth of parts and components in low-cost countries by the end of 2007, 70% of which target Chinese companies, and Chinese parts companies must use the established foundation to accelerate the development of parts and components bases. To meet the needs of the international OEM and after-sales service market; parts and components exports from the aftermarket parts market to the accessories market and OEM support and change.

The second is that enterprises should improve their independent research and development capabilities, form their own characteristics and brands, achieve scale operations, and support multiple varieties.

"In particular, we must closely cooperate with the brand strategy of the entire vehicle company, and gradually build the A-class image of the Chinese "cost, quality, and high-tech" of auto parts products." Jiang Lei particularly emphasized the importance of brand building.

Third, in the face of market competition, the parts and components industry must accelerate the pace of industrial mergers and reorganizations and increase the level of specialization and scale.

The fourth is to actively explore the development model of establishing alliances between parts and components companies and vehicle companies. Component companies must rely on self-owned brand vehicle companies to participate in the simultaneous development.

"The development of China's auto parts industry must give play to its comparative advantages and form a competitive capability as soon as possible on unique individual items." Jiang Lei hopes that through hard work, it will soon be able to form a number of small giant companies in the automotive sub-sector and accelerate entry. The pace of major OEM suppliers in the world has established China's auto parts industry as an emblematic company.