China auto parts makers face cold snap

The demands in automobile markets overseas are withering, while major car importers call for protectionism, either of which will put China's auto parts manufacturers in hot water.

In early February 2009, Norstar Founders Group Limited (SEHK: 2339), a Hong Kong-based auto parts company, issued an announcement, saying that its majority shareholder had filed a liquidation application with the local court.

Norstar thus becomes the first listed auto parts manufacturer to have fallen down in the presence of the worldwide financial crisis. Although the company has other reasons for its liquidation, the prospects for China's domestic auto parts exporters is not optimistic.

On February 26 and 27, reporters called about 20 auto parts manufacturers in Shanghai and Ningbo City of Zhejiang Province. Neither of them was bullish on their businesses.

Those that rely on exports for their survivals suffer the most. Ningbo Jinding Fastening Piece Co., Ltd., a fastener manufactory, saw business volume dive 60%, due to anti-dumping launched by the European Union (EU).

The board chairman of a Shanghai-based auto plastics producer says their plants in both Shanghai and Beijing have suspended operation, and the company is shifting its business to e-commerce.

A Tianjin-based auto horn manufacturer saw business growth at the beginning of 2009, but its profits mainly came from selling TV horns. A senior technology executive of the company reveals that their auto horn business is suspended as a whole.

In January, China's auto exports amounted to 16,300 vehicles, falling 64% from a year earlier, citing the statistics by the China Association of Automobile Manufacturers (CAAM).

Complete carmakers were also affected. In the month, Chery Automobile Co., Ltd. sold only 290 vehicles to Russia, sinking 83%. Actually, not only Chery, but also other Chinese counterparts like Great Wall Motor Co., Ltd. (SEHK: 2333), have seen exports shrink since 2008.

Data show that Chery exported 119,800 vehicles in 2007, 37,100 of which were sold to the neighboring country, accounting for 30.97% of the total, while in 2008, the Chinese automaker's Russian sales only hit 15,728 vehicles, diving 58%, because of the country's protectionism. As a result, Chery did not fulfill its export plan for the year.

Amid the depressing international environment, analysts commonly advise Chinese auto parts companies to turn to the domestic market. But some think differently, like Kevin Chen, president and CEO of Gasgoo.com, B2B marketplace for export and import of auto parts, who believes they should enhance exports and globalization.

Chen points out that globalization will become the consensus of Chinese complete car and parts manufacturers in the future, and they need to enhance their management, by making full use of the opportunities coexisting with the financial crisis.