Domestic auto parts industry worsens

The National Development and Reform Commission and the Ministry of Commerce recently announced the Catalogue for the Guidance of Foreign Investment Industries (Revised in 2011), which will take effect on January 30, 2012. The "Catalogue" will encourage the shift from "whole vehicle manufacturing" to "manufacturing and development of key components." The author believes that this policy is not good news for local auto parts companies.

Today, foreign investment in key auto parts and components is as high as 70% to 80% of the market. Local auto parts companies are mainly concentrated in non-key parts and components markets. With foreign spare parts companies scrambling to set up wholly-owned enterprises in the Chinese market, have domestic auto parts companies lost opportunities to grow together with foreign parts and components?

First of all, the lack of accumulation of core technologies is still the weakness of local auto parts companies. The facts show that the current level of development of local parts and components companies is uneven, with the vast majority of manufacturers only possessing the functions of OEM, small scale of operation, low added value of products, weak market competitiveness, and core technologies.

Second, weaker quality control capability is also a serious injury to local auto parts companies. There is a clear gap between this and foreign parts and components companies. It is undeniable that currently the only company that accounts for a large proportion of local auto parts manufacturers is relying on the only advantage of low labor costs. However, due to the low level of quality of the workers and the lack of scientific system management in the production process, the quality control of individual processes is not in place, resulting in high reject rate of defective products and severe rework.

Lack of experience and opportunities for simultaneous development with OEMs, weak brand influence, and outdated corporate management models have also caused local auto parts companies to lack sufficient competitiveness and foreign-owned parts and components companies to compete in courtesy; With the rapid growth of the automotive market, the local auto parts companies are increasingly optimistic about the competitive situation they face as their own development resistance is increasing. Therefore, the formal implementation of the new “Catalogue” is likely to exacerbate the current difficult situation facing local auto parts companies.

As the saying goes, misfortunes are not alone. On January 31, the U.S. Manufacturing Alliance and some U.S. conference members held a press conference to accuse China of subsidizing the auto industry and damage the U.S. industry, and called on the U.S. government to take measures to restrict the import of auto parts in China. Tire and other related products initiated more anti-dumping countervailing investigations. The Ministry of Commerce of the People's Republic of China issued early warning information on this matter, and asked relevant trade associations and companies to pay close attention and prepare for the relevant preparations.

If the U.S. government insists on anti-dumping and anti-subsidy investigations against Chinese auto parts suppliers, this will be a fatal blow to the local auto parts industry, especially the tire export market. According to statistics from the China Association of Automobile Manufacturers, China’s sales of auto parts to the United States in 2011 were US$ 12.8 billion, of which sales of tire components were US$2.4 billion, which exceeded sales of automotive electronics and engines. Many export companies have sacrificed their profits in order to keep their share of exports, and their own profit margins have been squeezed. Now that the U.S. government has taken measures to restrict the import of Chinese auto parts and components, coupled with the impact of various trade barriers, the current market situation of local auto parts companies is worsening, and an unprecedented severe test has come.