In 2008, with the macroeconomic downturn in the auto industry falling sharply, China's parts and components industry still showed a strong momentum of growth. In 2008, the total income from main operations was 948.075 billion yuan, an increase of 23.85% over 2007. Sales value of 927.977 billion yuan, an increase of 24% over 2007. The proportion of parts and components' output value to the entire vehicle also increased from 72% in 2007 to 82.6%.

The development of spare parts industry is seriously lagging behind the vehicle

Since its reform and opening up in 1978, China has experienced 30 cold spells. During these 30 years, the Chinese automobile industry has also achieved rapid growth as a pillar industry. China has now become the third largest automobile producer in the world. The proportion of automobile production to the world's automobile output has increased year by year, from 3.6% in 2000 to about 12% in 2007. Along with the development of the entire vehicle, although the parts and components industry has made great progress, but compared with the vehicle industry, the development is still lagging behind.

The lag in the development of the parts and components industry is mainly reflected in the backward R&D capability, low profit level, small scale of the company, and weak comprehensive industry strength. Compared with foreign companies, the investment in R&D of domestic parts and components companies is less than a quarter, which directly leads to the backwardness of the company's technical strength. In 2007, the average monthly profit level of the parts and components industry was around 7%. Compared with production and sales, the average profit level was the lowest. The scale of auto parts in China is generally small, with less than half of the total number of parts and components enterprises above the total size. There are only a hundred large-scale parts and components companies that can truly exceed 100 million yuan.

The strength of parts and components companies is seriously different

According to data from Beijing Hong Rui Xinsi Management Consulting Co., Ltd., China currently has a total of more than 15,000 automobile parts and components companies, and less than half of the total number of spare parts and components enterprises in the country. It is truly a large-scale parts and components company that can exceed 100 million yuan. There is only a handful of companies, most of which are SMEs.

The development of parts and components industry was double squeezed

Due to history and strength, the development of China's auto parts companies has been squeezed both upstream and downstream.

Extrusion of raw material suppliers

The main responsibility of upstream suppliers is to use their own monopoly or oligarchic status to squeeze parts and components companies. For parts and components companies, especially the second and third-tier component manufacturers (these are mainly small and medium-sized enterprises), their upstream suppliers are generally large industrial raw material companies. For example, producers of steel and non-ferrous metals have negligible bargaining power and bargaining power compared to their counterparts. In the face of its price increase and lack of timely supply, parts and components companies have no alternative.

Downstream OEMs are strong

Host plants also often use their own strong position to reduce their profit margins for their own interests. For example, when sales decline in companies need to reduce costs, the first major measure adopted by OEMs is to reduce the purchase price of parts and components. In addition, many small and medium-sized enterprises are responsible for the burden on the main plant.

Faced with the increase in cost and sales volume in the near-term period, the OEMs are struggling to reduce costs, which is mainly achieved by reducing internal expenditures, layoffs, and lowering raw material purchase prices. And low-cost acquisitions will be the most effective way to control costs. In the face of a strong OEM, most parts and components companies do not have bargaining power. As a result, parts and components manufacturers have been stricken by the double pressure of the upstream and downstream, and the profit space has been compressed indefinitely.

According to the company's understanding, many OEMs now require the establishment of third-party inventory around the parts companies. The reason for the OEM is to reduce its warehouse occupancy and management costs and to respond appropriately to market changes. Most of these third-party inventories are inextricably linked to the OEM. This is the inventory organization that is also very chaotic. It is not even possible to provide inventory for companies that store parts in their warehouses. The irresponsibility of the OEM is also reflected in frequent changes in orders. Host plants can change the production orders that have already been released due to changes in their own production plans and market conditions. Some parts companies even responded to the 30 orders they had received in one month, and there are as many as tens of each. Products and changes include various items such as delivery time, delivery quantity, and product variety. This undoubtedly aggravated the production costs of parts and components companies and affected their delivery speed and quality. Frequent change orders revealed that the OEM's production management is not in place, but this responsibility has always been borne by the parts companies.

Component industrial cluster effect is obvious

According to the research of Hong Rui Xinsi, there are 103 major parts and components industrial parks in China. Judging from the layout, most of these industrial parks are located in the eastern coastal areas, mostly in Jiangsu, Hebei, Zhejiang, and Fujian. Among them, there are 13 parts and components industrial parks in Jiangsu Province, ranking first in the country. Except for the five western cities of Gansu, Qinghai, Ningxia, Xinjiang, and Tibet, there are no large-scale component industrial parks, and other provinces and cities are distributed. From the point of view of the types of enterprises, there are tens of thousands of component companies gathered in these parks, covering all aspects of the automotive industry chain. It can be said that the size of the cluster is already considerable. In addition, during the construction of these industrial parks, the government has fully considered factors such as proximity and clustering advantages. The complementary relationship and complementary resources within the park have been initially reflected. For example, Tiexi Industrial Park in Liaoning is mainly a large-scale tire enterprise, while Cockroach is led by a filter, which in turn drives the rise of related industries. Although most of the individual enterprises in China's parts and components industry park are small and medium-sized enterprises, the scale is not large, but some parks occupy a high market share and show strong cluster advantages.

Autonomous parts companies are severely squeezed by foreign capital

Up to now, 70% of the world's top 100 auto parts suppliers have come to China for business, and there are more than 1,200 foreign-funded enterprises that produce auto parts in China.

In 2006, the sales revenue of auto parts enterprises nationwide was 403.5 billion yuan, of which foreign-funded (controlling or wholly-owned) parts accounted for most of the market share, and domestic parts accounted for only 20%-25%. Since the "Administrative Measures for the Import of Auto Parts That Constitute the Characteristics of Complete Vehicles" was implemented in April 2005, the enthusiasm of foreign-funded parts and components companies investing in China has suddenly increased. According to statistics, there were more than 90 foreign-funded parts and components companies that signed up for investment and cooperation in China that year, and the agreement investment amounted to 4 billion US dollars, which was 3.2 times that of 2004. Among them, there are many transnational giants such as Delphi, Denso, Sumitomo, Dana USA, Valeo of France, and Fujitsu Electronics of Japan. Two years later, this boom has not returned.

Regional economic data analysis

The industry is highly concentrated and the top ten provinces in output value account for 80% of all markets. According to statistics, in 2008, the top 10 provinces and cities for cumulative output value were Zhejiang, Jiangsu, Guangdong, Shanghai, Shandong, Hubei, Jilin, Tianjin, Chongqing and Henan. The total output value of the first ten months accounted for 76.74% of the country's total. Eight of these ten provinces are located in the eastern coastal areas, while the output value of parts and components of Chongqing in the western region driven by Changan Automobile ranks in the top ten. This shows that China's spare parts industry cluster has begun to take shape.

Hong Rui Xinsi suggestions: Parts industry "segmented development plan"

As far as the entire auto parts industry is concerned, the market share of China's autonomous parts and components companies and the manufacturing capacity of 90% are concentrated in the low-end parts and components products, while only 10% of the companies are taking the high-end route and the production has higher technology content. The parts and components are the top 10%, and the vast majority are also joint ventures with foreign companies. If this trend continues, China's parts and components companies will be completely squeezed into the low end of the range, and they will never be developed. According to the research of Beijing Hong Ruixinsi, there may be hope for the development of parts and components industry to follow the “segmented development plan”. Of course, the implementation of this plan needs the cooperation of all parties and it needs to be relatively long. For some time, but it can make the parts and components companies really grow up, this cost is worth it.

First of all, for 10% of high-end products, you can choose to gradually abandon the joint venture. At the same time, the funds and manpower drawn from the joint venture will be put into the establishment of research institutions and university laboratories, and the road to R&D will be truly started. When these high-end technologies have become domestically produced, they will continue to focus on the high-end products of the parts and components industry and allow high-end products to become the leading products in the parts and components industry. This is also a thick and thick process.

For 90% of the low-end products, they are divided into different grades to arrange different development directions. Some powerful companies have begun to move toward mid-range products. This proportion may start at only 5%. However, it is necessary to continuously guide and select powerful parts and components companies to make progress, and gradually expand the market share and production capacity of this region. However, there is a limit to the development of the mid-market, for example, only to 35%. Second-rate parts and components companies still insist on doing low-end products, but the company's strength must be gradually improved, and then switch to mid-range products, compress the market share of low-end products, compressed to 5% or even completely eliminated. The increase in the strength of the second- and second-tier companies is also accompanied by the acquisition and merger of third-rate companies.

The final blueprint for development is that high-end products burst through and become the dominant products. The remaining market share is mid-range products, while the low-end products are transferred to other underdeveloped regions and countries.

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August 08, 2024