A Report on the Development Trend of China's Auto-parts Industry (VI)

Part VI: The OEM market share of foreign auto-parts makers will getting larger and Chinese manufacturers of high-tech products have gloomy prospects.

The huge market potential and cheap labor force in China are attracting an increasing number of multinational (or global) auto-parts groups. According to industry statistics, more than 1,200 of the current 5,000 or so auto-parts manufacturers in China are foreign companies and joint ventures, and most of these foreign manufacturers are among the world's 500 largest companies.

These auto-parts multinationals are world leaders in their business scales, technological might, and global operation experience. They have the capabilities, expertise and experience of developing new car models, systems together with carmakers and supplying modules to them. Almost all of them are tier-1 or tier-2 OEM suppliers of systems and modules for the global automotive groups (6+3). Their businesses concentrate on the car bodies, engines, transmissions, axles, chassis, steering, brakes, electronics, accessories, air-conditioners, passenger-protection systems, stereos, and exhausts. Their sound funding, sophisticated technologies, and long experience have helped them gain the favorable heights in the competitive market.

China's local manufacturers of auto parts are mainly engaged in the production of labor-intensive products and in materials processing. Their products include chairs, batteries / cells, wheels, bumpers, universal joints, drive shafts, and windshields. These auto parts require only low technologies. In the making of high-tech auto parts, most Chinese manufacturers must depend on global large suppliers of auto parts for support in technologies, funding, and sales networks. The Chinese companies depend on the foreign funds to a much further degree than indicated by the statistics, and most of them only remain to be copycats of foreign products.

Since China's entry into the World Trade organization (WTO) in December 2001, the global large manufacturers of auto parts have tightened their control and dominance of the auto-parts markets in the country. By acquiring the existing local manufacturers and raising their stakes in joint ventures, they turned the Chinese companies into their majority-owned companies or wholly-funded subsidiaries.

After it issued some regulations in 2005 concerning the auto-parts export, the Chinese government is also boosting its efforts to improve the technological rules and laws for auto safety and environmental protection, and it plans to implement in 2010 the technical standards almost equal to those used by the developed countries such the U.S., Japan and EU members. These favorable factors have further encouraged foreign makers of auto parts to invest in China, and as a result, many foreign carmakers and auto-parts makers in China have quickened their steps in introducing their new-technology products into China for local production, such as Volkswagen AG's newly built transmission assembly plant in Dalian, and BorgWarner's turbo facility in Ningbo. Local manufacturers in China stay only at the early or initial stage of development in the manufacturing of shock absorbers, power steering, safety air-bags, GPS (global positioning system), automatic transmissions and other high-tech products.

More significantly, the local makers of high-tech auto parts are put at a disadvantage in sourcing and have little chance for growth. For some historical reason, foreign companies always transplant their existing OEM relations to China in the high-tech or value-added sectors. On the other hand, the increasingly fierce competition and the need for product upgrade have also urged the emerging local manufacturers of own-brand auto parts to increase their sourcing of high-tech products from foreign companies or their joint ventures.   

A Boston survey shows that the China-based branches of global auto-parts manufacturers have further localized their R&D, local sourcing, manufacturing and sales than foreign carmakers in the country. With their localization going further, the foreign manufacturers of auto parts will get more and more deep-rooted in China, and this will squeeze away the survival space of local manufacturers who are oriented to the making of high-tech auto parts, especially the high-tech assembly products.

Related:

A Report on the Development Trend of China's Auto-parts Industry (I)

A Report on the Development Trend of China's Auto-parts Industry (II)

A Report on the Development Trend of China's Auto-parts Industry (III)

A Report on the Development Trend of China's Auto-parts Industry (IV)

A Report on the Development Trend of China's Auto-parts Industry (V)