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Automobile parts makers make hay in downturn
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08:47, July 01, 2009

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While China's vehicle exports were severely battered by the global economic downturn, its automobile parts suppliers have been faring well in overseas markets.

According to Customs figures, in the first four months, while China's vehicles exports continued to fall, auto parts exports showed some signs of recovery.

China exported auto parts valued at $3.08 billion in the first four months, down 36.7 percent year-on-year.

However, in March and April, after seven consecutive months of drop, the export figures began to rebound.

In March, China exported 161,200 engines, 37.55 percent more than in February, and delivered auto accessories and bodyworks overseas with total value of $1.05 billion, up 59.92 percent from the previous month.

In April, although China exported 33 percent less parts over last year, the figure grew by 9.8 percent from March.

"The collapse of US auto giants will impact OEM (original equipment manufacture) parts makers, but won't affect the companies like us which mainly supply auto parts in the retail market," said Zhou Jiaru, board chairman of Wenzhou Guansheng Group, one of the biggest auto parts suppliers in Zhejiang province.

As an enterprise that set up a distribution network six years ago in the US, by mainly providing parts in the retail market, Guansheng is expanding its network in the country by taking advantage of the industry slowdown.

"We are recruiting local salespeople when the US players are cutting headcount," said Zhou.

"New vehicles sales in Western countries have declined sharply amid the global financial crisis. The consumers there prefer to maintain their existing cars by replacing parts and this has definitely boosted the after-sales parts market," said Rao Da, secretary-general of the China Passenger Car Association.

"Moreover, while some parts makers in North America and Europe close down, international automakers have to find new parts suppliers in low cost manufacturing regions to make up for the deficit in profits," said Rao.

According to a recent research report by A.T. Kearney, a global management consulting firm, more than half of the auto parts suppliers in the US may file for bankruptcy protection this year, with 70 percent facing bankruptcy and restructuring.

United Securities Co said in its industry report released on June 9 that foreign automakers' plans to seek high-quality but low-price auto parts provides Chinese parts makers many opportunities in the overseas markets.

"Chinese auto parts suppliers are expected to boost their market share in global market due to the industry retreat," said the report.

On the other hand, "as more and more international parts manufacturers follow their OEM partners to China, they will help our local parts industry improve and upgrade the technologies," said Rao.

However, analysts also warn that Chinese parts makers need to improve their own capability through industry reforms and restructuring to weather the international competition in light of this opportunity.

Statistics from the China Federation of Industrial Economics show that in China, only six auto parts suppliers posted annual sales revenue of over $1 billion, whereas 50 enterprises had revenue of over $50 million.

"The financial crisis provides another opportunity to rid the industry of small players with low capacity," said Professor Zheng Haihang with Capital University of Economics and Business.

Source:China Daily

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