I. Characteristics of China's Auto Parts Supply Market

　　Many suppliers are exploring this issue. As the old saying goes, 'Know yourself and know your enemy, and you will win a hundred battles.' For suppliers in the midst of transformation, or those preparing to enter China's automotive parts supply industry, understanding the characteristics of the domestic supply market can reduce unnecessary 'tuition fees'. The characteristics of the domestic supply market can be summarized as follows:

　　1. Compared to the aftermarket, there are fewer varieties, but the quantity of each batch is larger.

　　2. The technical difficulty is higher than that of the aftermarket. Due to direct control and participation by OEMs, the technical requirements are much higher than those of the aftermarket.

　　3. Logistics must absolutely guarantee the timeliness and continuity of supply, and absolutely cannot cause OEMs to stop production; ideally, warehouses should be set up around the vehicle manufacturer.

　　4. Higher service requirements, such as potential recalls. In addition, even if the vehicle model you supply has been discontinued, you generally need to guarantee parts supply for more than ten years.

　　For many suppliers, there is not much space left in the domestic market, and developing overseas markets has become an urgent task.

　　II. Current Situation of Chinese Automotive Parts Manufacturing Enterprises

　　1. Chinese Local Auto Parts Manufacturers Face Numerous Difficulties

　　In recent years, with the rapid development of China's automotive industry, the strength of vehicle manufacturers has significantly increased. In stark contrast, China's automotive parts industry still has a considerable gap to become larger and stronger.

　　Under the background of rising raw material prices, RMB appreciation, rising labor costs, and repeated reductions in export tax rebates, whether to raise prices or not has made every company hesitant. However, for Chinese local parts companies, raising prices may mean losing orders. Due to the lack of core technologies in their products, if they lose their traditional cost advantage, they may face the embarrassing situation of no one buying 'Made in China'.

　　At the "2008 China Shanghai International Auto Parts Exhibition," many parts suppliers expressed that they felt significant pressure from the international market. Companies that were able to generate good profits a few years ago have seen their profit margins decline significantly due to rising raw material prices and RMB appreciation. The profits from exports are becoming increasingly thin, and competition in the domestic automotive parts supply market is becoming increasingly fierce. The gross profit margin of companies doing aftermarket parts is continuously declining, with an average of around 10%.

　　In addition, multinational parts companies have entered China one after another, rapidly expanding in the passenger vehicle and commercial vehicle parts sectors. Various factors have led to severe challenges for Chinese local parts companies.

　　2. Multinational Parts Suppliers are Strong

　　Compared to the increasingly difficult times for local parts suppliers, multinational parts suppliers are thriving in China. Denso (Japan), Mobis (South Korea), Delphi and BorgWarner (USA), etc., their wholly-owned or holding companies in China have seen their businesses rapidly soar, driven by the strong growth of the Chinese market.

　　Yang Weihua, Asia Pacific Market Director of Visteon, said: The rise in raw material prices has eliminated the low-cost advantage of local suppliers, but Visteon's business in China will still grow significantly. "The directly affected will be Chinese local suppliers, although this impact may not be apparent for one or two years."

　　Relevant personnel from BorgWarner (China)'s procurement department said: From 2006 to 2010, BorgWarner's turnover in China will achieve the ambitious goal of "5 times growth in 5 years." Currently, BorgWarner in China supplies parts to local OEMs on the one hand, and uses China as a production base for global exports on the other.

　　The fluctuation of the RMB against the US dollar will only affect exports to the United States and is not enough to affect the strong growth of BorgWarner's overall business in China.

　　Liu Xiaohong, Public Relations Manager of Delphi (China), optimistically estimates that this year's performance growth in China will be over 40%. According to Jiang Jian, Vice President of Delphi (China), its business in the Asia-Pacific region is growing at 26% annually, and its business in China is growing at 30% annually. "Because of this rapid growth, Delphi has decided to establish its fifth technology center in the Asia-Pacific region in China. Currently, various work is being prepared in full swing."

　　Relevant statistics show that there are currently nearly 500 foreign-invested parts companies in China. Multinational suppliers, including world top 500 parts companies such as Visteon, BorgWarner, and Delphi, have all established joint ventures or wholly-owned enterprises in China without exception.

　　3. The Marginalization Elimination Competition Officially Begins

　　In the competition between domestic and foreign companies, most suppliers from mainland China are becoming increasingly marginalized.

　　A typical example is that almost all core parts companies in China are completely monopolized by multinational companies in the form of wholly-owned or holding companies. According to statistics, foreign capital already accounts for more than 60% of the Chinese automotive parts market, and in the passenger car parts industry, experts estimate that it will reach more than 80%. In addition, in key areas such as automotive electronics and other high-tech products, as well as engines and transmissions and other core parts, the market share controlled by foreign capital is as high as 90%. Some experts even warn that as upstream suppliers in the automotive industry chain, once the main market position is lost, it may mean that the local automotive industry is "hollowed out."

　　Currently, China's automotive parts industry is seriously lagging behind the development of complete vehicles, and the overall competitiveness of Chinese automotive parts companies is declining. Due to the serious emphasis on complete vehicles and neglect of parts by industry authorities, backwardness has become the biggest obstacle to the development of China's automotive parts industry.

　　Although Chinese suppliers are growing rapidly, their products lack core technologies, and the weakness of basic industries (such as steel manufacturing and industrial plastics) are reasons why vehicle manufacturers lack confidence in local parts suppliers. Taking BorgWarner (China) as an example, currently nearly 70% of BorgWarner's suppliers are from mainland China, but only 30% of these suppliers may be included in the core supplier ranks, while other suppliers will eventually face elimination.

　　In the ecosystem of parts suppliers, according to strength and different divisions of labor, it can generally be divided into three levels: Tier 1 is the automotive system supplier, Tier 2 is the automotive assembly/module supplier, and Tier 3 is the automotive parts/component supplier. Most domestic local parts companies are in the Tier 2 and Tier 3 camps, and almost none have entered Tier 1.

　　Currently, the Tier 1 camp is almost dominated by multinational parts companies such as Bosch, Visteon, and Delphi, while domestic companies are mostly Tier 3 small parts suppliers with raw material production, low-tech content, and labor-intensive production methods.

　　Always copying others' homework, resulting in an inability to graduate. Chinese auto parts manufacturers can only escape the increasingly marginalized situation in production, technology, and R&D by focusing on technological innovation and developing high-value-added products.

　　III. How Can Domestic Auto Parts Suppliers Break Through the Encirclement?

　　With the rapid development of China's auto industry, China has become the world's third-largest auto consumer. In 2007, the number of vehicles in use will reach 45 million, of which 32.5 million are private cars. In recent years, the number of vehicles in use in China has grown rapidly, jumping to sixth place in the world. By 2020, it may reach 133 million, second only to the United States, and then enter a period of stable development.

　　It presents boundless business opportunities, is full of charm, and is an untapped "gold mine" waiting to be explored. With the rapid growth of complete vehicles, the auto parts industry has also experienced rapid development. This huge Chinese market has attracted almost all internationally renowned auto parts brands. In recent years, especially, international brands such as Delphi, Visteon, Denso, Michelin, and Mahle, leveraging their international brand advantages, have soared in the Chinese auto parts market, posing a strong impact on the domestic market. Domestic auto parts development has fallen into a passive situation, and breaking through the international encirclement has become the top priority for domestic parts companies.

　　1. Create a "renowned" independent brand to achieve a brand breakthrough

　　Foreign auto parts brands often cleverly utilize the blind consumer psychology of Chinese consumers, using their "foreign" and "large international company" image to present themselves as the most professional auto parts brands, gaining consumer trust. At the same time, due to this psychology, many customers will specifically request imported high-end parts because, in their eyes, domestic parts are only mid-to-low-end products.

　　It can be said that brand disadvantage is one of the biggest disadvantages of Chinese domestic auto parts companies. In recent years, although China's auto parts manufacturing has greatly improved, there is still a large gap compared to powerful international companies. Our auto parts companies do not even have a few "renowned" brands that make Chinese people proud. Therefore, auto parts companies must focus on shaping their own brand personality and highlighting it, creating a uniquely Chinese brand. An automotive expert believes that parts companies can only ultimately showcase their "brand" and create the competitiveness to break through international encirclement by forming an independent development system and capabilities, and an independent development team.

　　Competition in the auto parts industry is fierce, especially with the increasing intensification of economic globalization. Numerous international auto parts giants have entered the Chinese market, putting immense pressure on domestic auto parts companies. Domestic auto parts companies should use the world's top standards and companies in the industry as their benchmark and target for catching up, striving for higher-level development. They need to develop one or two, or more, unique skills that others don't have, improving the competitiveness of their products and creating an absolute advantage. They need to rapidly expand their production capacity and scale, quickly becoming stronger and larger. They need to create world-class strong independent brands, forming a "high, special, and strong" brand effect. In recent years, some Chinese auto parts companies have emerged with brands that have a foothold in the market, such as Wanxiang bearings, etc. The scale of these companies is gradually expanding, their technical strength is gradually increasing, and they have carved out their own space and showcased their brands in fierce competition. For example, Hunan Jiangbin Machinery (Group) Co., Ltd., which specializes in the production and operation of high- and mid-range diesel engine pistons, gears, and oil pumps, has quickly adapted to the market in recent years, continuously improving its product technology development level and product quality. The company's products have always maintained a dominant position in market competition, providing favorable conditions for the company to participate in domestic and international competition. The "Jiangbin" brand piston has become a well-known brand in the industry and has been continuously awarded as an industry and provincial "famous brand product".

　　2. Innovate core technologies to achieve high-end breakthroughs

　　The high-end market for auto parts has always been a fiercely contested area. From the perspective of market profit, although high-end auto parts currently only account for 30% of the entire automotive parts market, their profits far exceed the total profits of mid-to-low-end products. Although China's auto parts industry has made some breakthroughs in the high-end market, foreign auto parts manufacturers, with their strong economic and technological strength, mature products and production management experience, and strategic alliances with multinational auto groups, have occupied the main high-end parts market in China, controlling high-tech and high-profit product areas. Domestic parts companies, however, are engaged in increasingly fierce low-end competition, resulting in a situation of "high-end loss".

　　"Low-end melee" and "high-end loss" in the Chinese auto parts industry are a true reflection of its position at the low end of the industrial chain. The root cause of the current situation in China's auto parts industry is the lack of core technologies among domestic companies, an inability to showcase their unique skills.

　　It presents boundless business opportunities, is full of charm, and is an untapped "gold mine" waiting to be explored. With the rapid growth of complete vehicles, the auto parts industry has also experienced rapid development. This huge Chinese market has attracted almost all internationally renowned auto parts brands. In recent years, especially, international brands such as Delphi, Visteon, Denso, Michelin, and Mahle, leveraging their international brand advantages, have soared in the Chinese auto parts market, posing a strong impact on the domestic market. Domestic auto parts development has fallen into a passive situation, and breaking through the international encirclement has become the top priority for domestic parts companies.

　　1. Create a "renowned" independent brand to achieve a brand breakthrough

　　Foreign auto parts brands often cleverly utilize the blind consumer psychology of Chinese consumers, using their "foreign" and "large international company" image to present themselves as the most professional auto parts brands, gaining consumer trust. At the same time, due to this psychology, many customers will specifically request imported high-end parts because, in their eyes, domestic parts are only mid-to-low-end products.

　　It can be said that brand disadvantage is one of the biggest disadvantages of Chinese domestic auto parts companies. In recent years, although China's auto parts manufacturing has greatly improved, there is still a large gap compared to powerful international companies. Our auto parts companies do not even have a few "renowned" brands that make Chinese people proud. Therefore, auto parts companies must focus on shaping their own brand personality and highlighting it, creating a uniquely Chinese brand. An automotive expert believes that parts companies can only ultimately showcase their "brand" and create the competitiveness to break through international encirclement by forming an independent development system and capabilities, and an independent development team.

　　Competition in the auto parts industry is fierce, especially with the increasing intensification of economic globalization. Numerous international auto parts giants have entered the Chinese market, putting immense pressure on domestic auto parts companies. Domestic auto parts companies should use the world's top standards and companies in the industry as their benchmark and target for catching up, striving for higher-level development. They need to develop one or two, or more, unique skills that others don't have, improving the competitiveness of their products and creating an absolute advantage. They need to rapidly expand their production capacity and scale, quickly becoming stronger and larger. They need to create world-class strong independent brands, forming a "high, special, and strong" brand effect. In recent years, some Chinese auto parts companies have emerged with brands that have a foothold in the market, such as Wanxiang bearings, etc. The scale of these companies is gradually expanding, their technical strength is gradually increasing, and they have carved out their own space and showcased their brands in fierce competition. For example, Hunan Jiangbin Machinery (Group) Co., Ltd., which specializes in the production and operation of high- and mid-range diesel engine pistons, gears, and oil pumps, has quickly adapted to the market in recent years, continuously improving its product technology development level and product quality. The company's products have always maintained a dominant position in market competition, providing favorable conditions for the company to participate in domestic and international competition. The "Jiangbin" brand piston has become a well-known brand in the industry and has been continuously awarded as an industry and provincial "famous brand product".

　　2. Innovate core technologies to achieve high-end breakthroughs

　　The high-end market for auto parts has always been a fiercely contested area. From the perspective of market profit, although high-end auto parts currently only account for 30% of the entire automotive parts market, their profits far exceed the total profits of mid-to-low-end products. Although China's auto parts industry has made some breakthroughs in the high-end market, foreign auto parts manufacturers, with their strong economic and technological strength, mature products and production management experience, and strategic alliances with multinational auto groups, have occupied the main high-end parts market in China, controlling high-tech and high-profit product areas. Domestic parts companies, however, are engaged in increasingly fierce low-end competition, resulting in a situation of "high-end loss".

　　"Low-end melee" and "high-end loss" in the Chinese auto parts industry are a true reflection of its position at the low end of the industrial chain. The root cause of the current situation in China's auto parts industry is the lack of core technologies among domestic companies, an inability to showcase their unique skills.