Chinese supplier finds niche market of TPMS

Shanghai Baolong Automotive Corp, found in 1997, is the world's largest tire valve manufacturer. Also, Shanghai Baolong is the first Chinese supplier that has put tire pressure monitoring systems (TPMS) into volume production and even exported to overseas markets. So what's the story behind its development and what's the future plan? Charles Zhang, President of Shanghai Baolong has his answers.

Shanghai Baolong's history

Gasgoo.com: Please give us a brief introduction of Shanghai Baolong's early years.

Charles Zhang: We started by doing international trade business of auto parts. Then we quickly turned to the production area-we took over a small tire valve plant, which at that time did not run well during the 1997 Asian financial crisis. We moved our facilities and personnel to Shanghai in 1999 and set up the first overseas sales branch in Canada in 2000. We now have sales companies in the U.S., Germany, Hungary and so on.

In the 2005 we had a big breakthrough-we completed the purchase of Dill Air Controls Products, LLC. The next year we started to build our new production facility in Anhui, where the operating cost is lower. We transferred the stainless exhaust pipe production to the Anhui facility, which is our second main business-we're among the world's top three and our products are supplied to GM Toyota, BMW and Peugeot.

Last year, we put our TPMS products into mass production. This project, also the third main business of Shanghai Baolong, is expected to bring us big returns. We're exporting our TPMS to overseas markets and also attracting more and more local automakers in China.

Successful takeover of Dill from Eaton

Gasgoo.com: How did you complete the merger of Dill ACP in 2005?

Charles Zhang: Actually, we didn't spend much time on that. Since 2003, we have had business with Eaton Corp., which acquired Dill in 1961; not until the end of 2004 did we heard the rumor that Eaton was planning to sell out Dill. We learnt that they're in contact with potential buyers, but still we made a proposal to bid for it, which surprised Eaton, as at that time they were working on a three-way bid in secret for a period of time.

However, the three-way bidding team finally walked away as the two sides failed to reach agreement on some main points, so when we're just about to give up, they told us to continue the negotiation. And then in February 2005, several days after the Chinese Spring Festival (Chinese New Year), Eaton expected us to conclude the merger by March 15th. So we had only one month to prepare; we even didn't find a qualified lawyer (it's Eaton that recommended a lawyer to us)! We teamed up with another Chinese company to complete the acquisition for the temporary lack of fund.

Gasgoo.com: According to the consulting company Alixpartner, 80 percent of the Chinese auto suppliers tend to merge, half of which even seek likely international mergers and acquisitions (M&A), but inefficient management hinders them. So how does Baolong continue Dill's business?

Charles Zhang: I would say it's a successful merger. We posted profit in the year of merger, and the profit rose in later years. The local North Carolina government even referred to this as a successful case to attract investment.

Before Eaton ended its control over Dill, they had made proper arrangement: they offered voluntary buyouts to the employees and allowed them to transfer to Eaton's other plants; they also sent early warnings to the existing customers while making extra inventory. Thus the original customers were retained.

Secondly, we have got acquainted with the management of Dill before the acquisition. We used to offer contract manufacturing for them, and knew something about their business. Also we have some reputation and background in the market, so it's not that difficult for us to integrate. With mutual trust and understanding, we kept the former management and the technical experts and didn't send our managers to overlook the operation.

Thirdly, we kept the two distribution channels separate-Baolong's and Dill's. With different brand position in the market place, we distinguished the two brands: Dill as the high-end and Baolong as the mid-end.

We moved Dill's tire valve production to China, but some of the high-tech products, e.g., aircraft gauges, aircraft valves and tank valves, are still produced in Dill. We're also considering moving Dill's shrinking production of air control valves to China.

Gasgoo.com: Do you have any benefit from taking over Dill?

Charles Zhang: Dill boasts a long history and rich experience and expertise in the making of tire valves and related parts. It has several patented technologies, though some have expired, the skilled personnel remained there. We'd exchanged ideas when doing big projects. Also the quality control system of Dill is perfect; we learnt a lot from that.

TPMS is growth market, and to take off

Gasgoo.com: Baolong has three product series: valve, stainless exhaust pipe and TPMS. With the other two sectors having topped the whole industry worldwide, could TPMS be the driving force in your future business?

Charles Zhang: Right. We started our TPMS project in 2002. At that time, the NHTSA published a ruling that requires all light vehicles to be sold after Sept. 2007 must have TPMS fitted as standard equipment. We saw the direct TPMS would be a mainstream device--which uses separate radio sensors mounted in each wheel, detects deflation and then transmits that information to the driver via a radio frequency signal.

We started our development with the help of some research institutes. Since the year 2007, our products have been exported to serve the aftermarket, but that's in small volume. We are now in contact with several American automakers, and we've entered into substantial talks with one of them. We are likely to supply them in large quantities from early 2009.

In China, we have also made progress. For example, Chery Auto is building cars for export under Chrysler's brand names. The cars to be exported to the American market should be equipped with TPMS, so we signed a supply contract with Chery. Also we supply a domestic automaker that wants to upgrade its brand image.

It's true that the overall market demand is still low, yet as similar legislation for TPMS will be introduced in the future, this growth market would surely take off. China has already jumped to be the world's second largest automotive market; I don't think such an important market would not have the safety concerns. We hope our domestic business would be boosted to a larger share.

By the year 2012, we will increase our TPMS production, occupy a steady position in the North American market and attract more major OEMs at home and aboard. We aim to rank among the world's top three TPMS manufacturers at the end of the day.