Whose cheese was moved by the environmental protection storm: The elimination of automotive parts suppliers

On September 26, the listed company Jie Long Industrial (600836) issued an announcement clarifying that Shanghai Jie Long Metal Wire Drawing Co., Ltd. (abbreviated as “Long Long Wire Drawing”) is the wholly-owned subsidiary of Shanghai Jie Long Group, the largest shareholder, and is not listed. Subsidiaries of the company do not have an investment relationship with listed companies. The closure of Jielong Wires due to environmental issues was not connected with the major shareholder Jielong Group and the listed company receiving the China Securities Regulatory Commission's Notice of Investigation.

For Jie Long Industrial, which is caught in the crisis of the CSRC's accountability, the drawing of Schaeffler's “urgent letter of appeal” to the press on the wave of criticism by the public has undoubtedly become the last straw to overwhelm the stock price.

When Schaeffler planned to issue an “emergency request letter” on September 18th, and asked for a three-month deadline, he must not have imagined that this would be the result of “self-defeating”. It clearly underestimates the tremendous impact that China's environmental storm is having on the automotive industry.

“Environmental protection supervision has a great influence on the parts and components industry. From 2017 onwards, the entire industry is responding to this issue.” At the China Component Industry Conference and Summit held at the end of September, domestic large-scale components that are unwilling to identify themselves The person in charge of the company said. In this forum, Schaeffler and Jie Long's "Oolong" rescue letter became a hot topic.

"Do not doubt that China's spare parts supply chain is so fragile. Under the environmental protection storm, off-duty events are likely to be staged," said the person in charge of the company stressed. According to public statistics, 65% of China's spare parts industry is in the state of scattered small businesses with an annual income of less than 20 million yuan, and low-cost is the first competitiveness of these companies.

Someone "falls into the water" and someone gets new opportunities. “In the case where multinational companies monopolize (dominate) the supply of parts and components, China's spare parts enterprises must always prepare for spare tires. As such, it is an opportunity.” Another success by environmental protection inspection "The responsible person for the first supplier's parts and components company said that more companies will therefore strengthen the cultivation of the second supplier."

The local suppliers at the low end of the supply chain are worried about the fact that there is no room for environmental inspections. On the one hand, the annual cost of spare parts giants will press down, and the pressure on the auto parts supply system will only increase. .

Two "big trees" can not cover the world of dragons

"He (Schaeffler) dared to say (for help letter), we dare not." Mr. Jin, a person in charge of an autonomous transmission manufacturer in China, said. In the industry's view, the identity of the global parts giant is Schaeffler's courage to publicly issue a "help letter". However, he did not expect that China's determination in environmental inspection has not given room for maneuver.

The negative impact of “clapping” on environmental protection law enforcement is huge. From the start of Schaeffler’s “Request for Help” letter, before the industry’s release of a clarification statement, Jie Long Industrial has been outflowing for four consecutive days and is predicted by shareholders as “ Cliff-breakdown will happen soon." The Jielong Industrial Co., Ltd., while trying to clear out the relationship, also exposed the powerful background of the Longsheng drawing. Its parent company is the Jielong Group, which was established in 1974 and is based in Pudong Jielong Village. As the first company to issue stocks listed in China's village-run economy, Jielong Group, with an annual output value of several billion yuan, is the leader in the domestic printing and packaging industry, and it is a place where all the villagers have shares and everyone is supported by Jie Long. Pillar companies. Although it is not the main business, in the introduction of its metal products industry, Jielong Group specifically pointed out that "has become the second-largest supplier of steel wire for automotive bearing manufacturers (Schaeffler)". In the forum discussion on Jielong, Jielong Group’s local influence was considered as the review of Longlong Wireline's inclusion in the list of rectification in 2015 and the main reason for emissions in 2017; it was also that Schaeffler was willing to take risks to exert pressure on local governments. The main considerations of the three-month grace period for the request of Jie Long.

However, even if they were backed by two "big trees," they still did not receive pardon. The reply of the Pudong New Area Environmental Protection Bureau was that as early as last December and March of this year, the company had twice told the company to stop production for a period of nine months. It was sufficient to coordinate communication and production adjustment between the company and Schaeffler. . "The environmental protection storms in Jiangsu, Zhejiang and Shanghai have already begun to blow up as early as a few years ago, especially as the inspections conducted this year are even more intense." Mr. Jin said, “Shanghai and Jiading have the strictest investigations. Shanghai used to be relatively loose. This year it has been strengthened.”

Jiangsu, Zhejiang and Shanghai are the largest auto parts production regions in China, and they are also the key areas for environmental supervision. Starting from the end of November last year, Shanghai’s Pudong ushered in the Central Environmental Supervision Group. In April, Jielong Metal Wire was fined 1,000 yuan for excessive discharge of wastewater. On September 4, Chuansha New Town once again informed in writing The company immediately stopped production. Since September 10th, the company has adopted measures such as “cutting power, stopping production, and dismantling related production equipment”. On the list of key environmental monitoring companies in Pudong released this year, major automakers such as SAIC General Motors have also been listed on the list.

Apart from Shanghai, Zhejiang where parts companies are concentrated is also the center of environmental protection storm. “We have a lot of parts and components companies here, but Zhejiang has always been very strict on environmental protection, so we must always remind the downstream parts and components companies of the dirty mess between rectification.” Mr. Fang, head of the automotive chassis supplier in Zhejiang, said, The policy given by the local government is that a small non-standard accessory factory will be shut down and not protected; if it is on the scale, the subsidies can be upgraded by environmental protection. “The purchase of environmental protection equipment, the state subsidies 30% For example, it cost 1 million to buy a sewage treatment equipment and 300,000 to the municipal government to supply you." Therefore, some of the larger companies have already invested funds for environmental protection upgrades as required, while small-scale auto parts factories have mostly chosen to shut down due to their inability to afford environmental protection inputs.

Not only in Jiangsu, Zhejiang and Shanghai, but also in Shandong Province, where Beijing and Tianjin, as well as cars have a lot of backward production capacity, the environmental supervision and supervision are all focused on monitoring in the automobile industry. After completing the fourth batch of central environmental protection inspections covering 8 provinces, the environmental protection inspection will achieve “ Full coverage."

Opportunity for spare tire promotion

"The company (of Schaeffler) is such a big company, there is no emergency plan, incredible, unexpected." The pressure of environmental supervision broke out in this way, Mr. Kim was surprised. What's even more surprising is that a multinational parts and components company has suddenly experienced a crisis of supply disruption, and he has not hesitated to push the entire vehicle cooperation enterprise to the cliff. This is incredible. “The international quality management system standard TS16949 of the automobile industry clearly stipulates that when you have quality problems, when your raw materials are cut off, or when power outages cause downtime due to human factors, you must have an emergency plan.”

Mr. Jin introduced that manufacturers of component parts such as gearboxes will adopt A, B, and two supplier plans when developing secondary suppliers. “Like bearings, two suppliers were selected during the development and experimentation, and the larger initial investment was to prevent A from failing in the future and to use B. Moreover, the two suppliers could also conduct price competition. If only One, it said how much is." Mr. Jin said that the vehicle factory is down every year (the annual purchase price fell by 3% -5%), if there is only one, the price can not drop down. Therefore, regardless of quality, cost, or safety, it is necessary to implement the A and B points.

Why Schaeffler only has a supplier of needle roller raw materials for Jielong is unknown outside the world. However, from the subsequent disclosure of replacing the products of Jielong Wires with imports, and actively developing new strategies for domestic suppliers, cost is the main consideration. "The use of imported alternatives in the short term should be the first measure that comes to mind. The reason why the 'help letter' is the next step should be to take into account the cost of rapid import."

In Mr. Fang’s view, due to the uncertainty of the underlying third-tier parts suppliers in the environmental storm, “discontinued goods” will become an opportunity for local parts and components companies. “A few months ago, a factory that did surface treatment to a joint-venture vehicle company was shut down because of environmental protection. As a result, because we were able to do surface treatment as well as in the supplier system, the factory had passed its certification, so we assisted the vehicle. The enterprise has passed through this difficult situation and has thus become the main supplier of this joint-venture car company.” Mr. Fang said, “The opportunity will always be reserved for companies that have prepared.”

A number of parts and components companies interviewed believe that this is a case in terms of the chain of interests between the two leading groups behind Schaeffler and Jie Long’s “mutual assistance”; but in the case of “off supply,” this will not happen. Is a lonely case. “The bigger the companies are, the easier they are because they are often overconfident,” Mr. Jin said bluntly, and it is precisely because of this that domestic parts and components companies must be ready to become spare tires and seize the opportunity to enter the supply chain system of multinational giants.

Domestic components' dual pressure

However, the opportunity for spare tires brought about by the environmental storm is not easy to obtain. The industry's view is that with Schaeffler's tragic environmental protection costs as a lesson, multinational car companies must be more cautious when selecting second-tier component suppliers, and foreign-owned component companies may be the first choice. This will only be more and more difficult for local parts suppliers to meet the opportunity for Mr. Fang’s company to “fill in shortfalls”.

Difficulties in two aspects, one is the decline of multinational parts companies, multinational companies are no longer only for joint venture car companies to do support, is also actively competing to become independent brand matching opportunities. This is a huge blow to the market share of local parts companies. Secondly, under the premise of not being technically superior, domestic spare parts companies can only re-compress costs in order to obtain new full tires and spare tire opportunities, which is also unbearable under the current market environment.

“The profitability of parts and components companies has been declining for the past two years,” said Mr. Fang. The fierce competition, coupled with the annual fixed-price 3%-5% decline in the price of the entire vehicle business, has caused the local parts companies to Double pressure.

Shi Jianhua, deputy secretary-general of the China Association of Automobile Manufacturers, also emphasized at the parts and components forum that the key areas of auto parts and components are still foreign-based parts and components, especially in the fields of electrification and high-precision components.

Many local parts companies are concentrated in the field of low-value-added components, and are scattered and repeated.

“Our complete vehicle companies and parts and components companies lack a stable cooperation relationship and parts suppliers are in a weak position. All of these lead to our entire vehicle companies requesting only parts and components, but there is not enough guidance. This is also indirect. Affected the technological upgrading of the automotive industry." Shi Jianhua said, "Overall, the development of foreign-funded enterprises in China will inevitably squeeze the space for Chinese brands to survive, and the monopolistic advantages will inevitably cause certain restrictions on the core technology breakthroughs of Chinese brands." The participating parts and components companies are even more worried and bluntly under the dual pressure of environmental protection storms and electrification, the elimination of local parts companies has started.