The Chinese automotive components sector 1st edition · 2005-09-19 · The Chinese automotive components sector 1st edition ... the Chinese market will become blighted by overcapacity

The Chinese automotive components sector

1st edition

2005 edition

Page i

The Chinese automotive components sector 1st edition by Mark Bursa

September 2005

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Page iii

Table of contents

Single-user licence edition............................................................................................................. ii Copyright statement .................................................................................................................. ii

Table of contents ........................................................................................................................... iii

List of tables .................................................................................................................................... v

just-auto.com’s research portfolio ............................................................................................... vi Incredible ROI for your budget – single and multi-user licences.............................................. vi

just-auto.com membership .......................................................................................................... vii

Chapter 1 Introduction.................................................................................................................... 1

Chapter 2 Structure and history of the indigenous domestic components industry............... 3 Historical and ongoing lack of profitability................................................................................. 5 China as an auto components export base .............................................................................. 6 WTO accession......................................................................................................................... 8 China’s new automotive policy, 2005........................................................................................ 8 The threat of piracy and IPR infringement .............................................................................. 13

Chapter 3 Tier 1 investments in China........................................................................................ 15

Chapter 4 Tier 1 suppliers – key Chinese activities................................................................... 20 Delphi ...................................................................................................................................... 20 Visteon .................................................................................................................................... 21 Bosch ...................................................................................................................................... 22 Denso...................................................................................................................................... 24 Siemens .................................................................................................................................. 25 ZF Friedrichshafen.................................................................................................................. 27 Valeo ....................................................................................................................................... 29 Johnson Controls .................................................................................................................... 31 Lear Corporation ..................................................................................................................... 32 ArvinMeritor............................................................................................................................. 33 Magna ..................................................................................................................................... 34 Eaton....................................................................................................................................... 35 TRW........................................................................................................................................ 36 Autoliv ..................................................................................................................................... 37 Faurecia .................................................................................................................................. 38 ThyssenKrupp......................................................................................................................... 39 Behr......................................................................................................................................... 40 GKN ........................................................................................................................................ 41 Tenneco .................................................................................................................................. 42 ContiTech................................................................................................................................ 42


Page iv

Omron ..................................................................................................................................... 43 Dana Corporation.................................................................................................................... 44 Hella ........................................................................................................................................ 44 NOK-Freudenberg................................................................................................................... 45 Mann+Hummel........................................................................................................................ 46 Mando ..................................................................................................................................... 46

Chapter 5 Conclusion ................................................................................................................... 47

Online sources of information ..................................................................................................... 49 Free email newsletters ............................................................................................................ 49 Other research reports ............................................................................................................ 49 Global news and feature articles............................................................................................. 49 Search the web ....................................................................................................................... 49

Your feedback ............................................................................................................................... 50


Page v

List of tables

Table 1: Tariff rates for imported components ............................................................................... 11


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Chapter 1 Introduction

Chapter 1 Introduction

Page 1


The explosive growth of the Chinese car market may have hit the wall in the

past year or so, but nobody could doubt the long-term potential of the market.

Senior executives, including General Motors’ chairman Rick Wagoner, believe

the enormous pent-up demand for cars will eventually make China the world’s

largest market, eclipsing even the United States.

Most of the attention has focused on the vast investments made by global

automakers in setting up production facilities in China. Altogether, foreign

automakers have committed in excess of US$XXbn to triple annual capacity to

6m units by the year 2010. GM has predicted sales could climb to between

XXm and XXm by the year 2020. And while China’s membership of the World

Trade Organisation will mean the market will have to open up to imports, most

of that demand will be satisfied by local production.

In addition to joint ventures between overseas car producers and local

manufacturers, new, local vehicle manufacturers are emerging. Companies

such as Chery and Geely are developing their own cars independently of

western partners. While their early attempts are blighted by accusations of

piracy and intellectual property theft, these companies are on a steep learning

curve, and are increasingly turning to European design consultants to provide

them with original designs – a path successfully trodden by the Koreans a

decade or more ago.

The downside to this huge investment in production is the likelihood that

supply will outstrip demand. In other words, the Chinese market will become

blighted by overcapacity. In order to overcome this, Chinese automakers are

looking to export a portion of their production – initially to other emerging

markets in the Middle East, Eastern Europe and Africa, but in the mid-term to

Western Europe and North America.

To achieve this, Chinese automakers must address the issue of quality – an

issue that encompasses far more than the activities within their own factory

walls. The entire supply chain must be able to produce components that are

capable of meeting stringent homologation, environmental and safety

Chapter 2 Structure and history of the indigenous domestic components industry

Chapter 2 Structure and history of the indigenous domestic components industry

Page 3


China’s automotive industry will celebrate its 50th anniversary next year.

China’s first automotive factory, First Automobile Works, started lorry

production in Changchun, northern China, in 1956.

But until 1986 it was focused entirely on the production of basic, utilitarian

commercial vehicles. And until 1993, China was a centrally managed, planned,

Communist economy. Five-year plans along Soviet Russian lines had been

implemented in 1952, and initial attempts to establish an automotive industry

were based on technology transfer of trucks from the Soviet Union.

However, the breakdown of relations with the USSR in 1960 led to a change in

Chinese industrial policy, devolving power to provincial authorities. This led to

fragmentation of the auto industry, and hundreds of self-contained, vertically

integrated commercial vehicle factories were set up around the vast country.

To serve these, thousands of small engineering works grew up, producing low

volumes of components in basic, crude and labour-intensive conditions.

The cultural revolution of 1966 and China’s subsequent self-imposed ten-year

isolation from the world saw any influx of new technology dry up. Obsolete

designs remained in production, but the industry fell behind rapidly developing

neighbours such as Japan and South Korea. Not until the death of Mao

Zedong in 1976 could reforms begin.

Mao’s successor Deng Xiaoping made the car industry one of the cornerstone

industries for rebuilding the country. In 1980, he passed responsibility for

restructuring the industry to the Ministry of Machine Building, giving it a wide

brief to rationalise and modernise the industry, using foreign technology if

necessary, and to instigate moves toward a market economy – a controversial

decision for the time.

Chapter 3 Tier 1 investments in China

Chapter 3 Tier 1 investments in China

Page 15


Most of the world’s major Tier 1 suppliers have set up facilities in China. They

have been encouraged to do so by the Chinese government’s more liberal

investment policy for auto parts. While automakers are limited to 50% foreign

ownership of plants designed to serve the domestic market, there are no

restrictions for parts. “Cost advantage plus a less stringent regulatory

environment encourage exports of labor-intensive and material-intensive

products,” said a recent report by investment bankers Merrill Lynch.

Auto parts manufacturers from Europe, America and Japan invested in 616

production projects in China between 1983 and July 2003, and further

investments are still being made. During these two decades, annual

automobile production in China grew from XXX,XXX units to X.XXm units, an

increase of XX.X times.

The majority of these are joint ventures with Chinese companies. Of the 616

investments, it is somewhat surprising that the majority are by Japanese

companies: 391 were made by Japanese manufacturers against 225 by those

from the US and Europe, though additional investments by Tier 2 US and

European suppliers could push that number to more than 300.

However the close proximity of Japan, plus the lower profile of Japanese

companies, needs to be taken into account. While western companies tend to

make a big deal of any moves into new markets in order to give themselves a

high City profile, Japanese companies just quietly get on with their

investments.

It seems the components industry was ahead of the curve with regard to

China. After an initial flurry of investments by the likes of General Motors,

Volkswagen and PSA Peugeot Citroën, it is only since the turn of the century

that automaker investment in auto production facilities has gathered pace.

Chapter 4 Tier 1 suppliers – key Chinese activities

Chapter 4 Tier 1 suppliers – key Chinese activities

Page 20


Delphi

Despite ongoing problems in the US, Delphi has continued investing in China,

and has developed significant capabilities locally.

Delphi’s involvement in China dates back to 1993, in anticipation of growth in

the Chinese automotive market. It claims to be the leading foreign invested

component and integrated systems supplier in the country with 14 facilities.

“China offers not only a growing market but an excellent talent pool,” said

outgoing Delphi vice chairman Donald Runkle. “Upon completion of the final

phase in 2009, in time for Shanghai’s World Expo in 2010, we plan to have

approximately 1,400 engineers, scientists and supporting staff who will support

application and systems engineering.”

In 2004, the company broke ground for its first R&D centre in China. The

wholly owned China Technical Centre is expected to open in mid-2005, and

initially employ about 500 engineers. Delphi announced in December 2003 it

would open the centre in Shanghai to develop components and support

application and systems engineering for several local customers and

transplant automakers in the country. With the technical centre, the firm’s total

investment in China will be about US$XXXm. Calendar year 2003 consolidated

revenue for Delphi China was US$XXXm.

Delphi has also expanded its current manufacturing capability in Suzhou. The

company has spent US$XX.Xm to build two new manufacturing modules for

Delphi electronics & safety division to produce various electronic products in

the Suzhou Industrial Park. Manufacturing capability covers the entire

production process from circuit board assembly to packaging and testing.

Delphi electronics & safety established its first facility in Suzhou in 1996. The

current leased facility in Suzhou produces audio systems, body computers,

powertrain controllers, security products and airbag controllers.

Chapter 5 Conclusion

Chapter 5 Conclusion

Page 47


The boom-and-bust growth that has characterised the Chinese car market

over the past three years will shift toward smoother, more manageable growth

in the future. The Chinese Government is still experimenting on how to

balance supply and demand – applying curbs to vehicle finance as a means of

regulating the market, for example.

Such measures have stimulated growth of the small car sector, and this has

been to the benefit of the new, entrepreneurial Chinese automakers such as

Chery, Geely and Byd. These companies have undercut the major Chinese

automakers’ JVs with foreign companies. These companies, especially Chery,

have been accused of design piracy – not without foundation. But within

Chinese culture such copying is not frowned upon in the same way that it is in

the west. And development of cars such as the Chery QQ – a very literal copy

of the Daewoo Matiz – is seen as a legitimate step on the learning curve.

At the 2005 Shanghai Show, the independent Chinese automakers dominated

with displays of new production and concept models. They are outsourcing

design and engineering to western companies – beneficiaries include all the

major Italian styling houses (ItalDesign, Pininfarina, Bertone, Idea); and

European engineering companies such as Ricardo, AVL and Lotus

Engineering.

The rapid growth of the Chinese independents is good news for the major Tier

1s. Chery and Geely are developing full ranges of new models, from small cars

through sedans, crossovers, MPVs and SUVs, and have indicated mid-term

ambitions to export in large volumes to Western Europe and North America.

To achieve this rapid development of new models, they will have to rely on “off

the shelf” technology, and working with Tier 1s operating in China with a

modular systems supply capability is the only way to achieve this.

Against this will be a more aggressive approach to procurement on the back of

increasing price competition in the car market. The independent Chinese

carmakers will continue to cut prices – and this in turn will force the foreign JVs

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Documents

The Chinese automotive components sector 1st edition · 2005-09-19 · The Chinese automotive components sector 1st edition ... the Chinese market will become blighted by overcapacity