Foreign auto parts producers eye synergy with domestic car makers

FOLLOWING the lead of foreign auto makers, overseas car parts manufacturers are aware that fast-expanding Chinese companies may be their next cash cow.

International car components manufacturers, which mainly supplied global auto giants, are focusing more attention on cooperation with Chinese car makers amid competition from homegrown auto parts makers.

Recently, Delphi Corp announced it won a 321 million yuan (US$40.1 million) contract with China's Chery Automobile Co Ltd.

The world's largest auto parts maker plans to provide complete Occupant Protection Systems, including airbags, and integrated navigation systems for several of Chery's models starting in 2009.

"It is truly exciting to be named a major safety supplier for China's fastest-growing domestic auto company," said Dan Salmons, Delphi's managing director of electronics & safety for Asia Pacific.

"Our job now is to execute and help Chery continue its expansion into new markets. This business also helps Delphi further diversify our customer portfolio," Salmons said in a statement.

Foreign auto parts makers such as Delphi, Visteon Corp and Magna International Inc joined the influx of foreign auto manufacturers in China in the 1990s.

In the early stages of China's auto industry, overseas auto parts makers targeted global players as international auto giants localized production.

About 70 percent of the world's top 100 auto parts makers have launched in China. The joint ventures and wholly-owned firms for making car components amounted to 1,200 with a market share of 60 percent in China.

As Chinese car makers hold aggressive expansion plans in both home markets and abroad, an auto analyst said stronger cooperation between Chinese auto makers and overseas auto parts makers will become a trend that benefits all involved.

"Chinese car makers, particularly those making their own models, have seen sales pick up very quickly and it's the long-term potential that attracts auto parts makers," said Sandra Zhou, senior analyst for the China auto components industry at CSM Asia Corp, a United States-based consulting firm.

"On the other hand, China's auto industry is just taking off and the Chinese firms are very thirsty for advanced technology, which can not be supplied by domestic parts makers," she added.

Vehicle sales rose more than 25 percent to top 7.21 million units last year, leapfrogging Japan to become the world's second-biggest auto market, according to the China Association of Automobile Manufacturers.

Domestic car makers including Chery Automobile Co Ltd, Geely Holding Group and Brilliance Automobile Co Ltd had sales growth that outpaced average industrial expansion.

Geely, China's largest private car manufacturer, reported that year-on-year sales jumped 40 percent to 204,000 units in 2006. The Zhejiang-based company plans to turn out two million units annually by 2010.

Chery, China's leader in small engine vehicles, sold a record of 305,236 units last year, surging 108.6 percent from 2005.

The market share of homegrown models accounted for 41 percent of total passenger car sales at 2.14 million units last year after the central government encouraged domestic auto makers to develop their own designs.

The 300 new suppliers of Nanjing Automobile Group Co Ltd, which is reviving the failed British Rover brand, included Delphi, Siemens AG, Lear Corp and Bosch Group.

European auto parts maker Stadco Corp also agreed to move its factory to Nanjing Auto's manufacturing plant in Longbridge, Britain.

By cooperating with global auto parts makers, advanced technology can help Chinese auto makers meet higher safety and emission standards. It occurs at a time when they are eager to break into mature overseas markets.

Chery started exporting vehicles in 2001.

Last year, the company shipped nearly 20,000 units to more than 50 countries. Future plans call for Chery to export vehicles to the US, the world's biggest car market.

Zhang Boshun, secretary of the China Association of Automobile Manufacturers Market and Information Commission said Chinese car makers are also upgrading their portfolio from small, compact cars to mid-class sedans and premier models. The upgrades require better quality parts.

"More cooperation would also play an important role in providing easier access to increase our self-developed technology and catch up with foreign counterparts," Zhang said.

Zhang also said the partnership reflects the intention of foreign car components makers to seek further localization.

"They can also gain advantages by jointly sourcing, which can lower costs."

The rosy picture for Chinese auto makers and foreign car parts manufacturers could cause problems for some Chinese auto parts makers, however.

An auto analyst warned that small-scale domestic auto parts makers, which survive with help from state-owned car makers, will be driven out of the market eventually as demand will drop for their products.

"Such kind of protectionism will change gradually as the Chinese auto market develops and becomes more affluent," CSM's Zhou said.

"They will be dealt a hard blow as long as overseas auto parts makers can control their budgets. Everything should be based on open markets and fair competition."