I. Overview of Chinas auto part industry
Together with the development of Chinas economy, relatively rapid growth has been maintained in Chinas auto part market in the recent years. Currently, there are about 5,000 large part enterprises in China, whereas 15% of these enterprises get a monthly profit of 50 million yuan. Part cost takes up over 70% of the total auto cost; therefore, the development of auto part industry directly influences the automotive industry development. Only continuously increase in auto part sales revenue certainly can a boom in Chinas automotive industry be ensured. Auto part, as a sub-branch of automobile industry, contributes a lot to the development of Chinas auto industry.
Chinas auto part manufacturers can be divided into the following four types: the first is part plants affiliated to large automotive groups. Depending on state-owned parent groups, these plants are accustomed to Chinas traditional plan production mode and deviates from market orientation in price mechanism. The second is state-owned part manufacturers, most of which are acquired due to long-term poor management. The third is private companies, most of which are developing quickly and shoulder the future of Chinas auto part industry to some extent. The fourth is small factories. Due to the old management system and low-level quality guarantee system, these factories can hardly exist, not to mention develop. Most likely they will be out of the market or be acquired in the near future.
After entry into WTO, Chinas automotive industry encounters quite a lot global impact. As foreign auto part manufacturers are attracted by the broad market in China and accelerate their steps into Chinas market. At present, foreign invested auto part enterprises have accounted over 500 in China. A market share from transnational part manufacturers has exceeded 20%. Facing such fiercely completion, Chinas auto part industry is in urgent need of improving the backward situation of small scale and low concentricity
II. Incentives for merger and reorganization
Profit shrinking is the fundamental reason. In the first quarter of 2005, profits of automotive industry decreased about 10 billion Yuan year on year, down by 60%. Influenced by the stagnation of automotive assembly industry and the rising of steel price, it is the first time in the past ten years that the profit has declined. In the first half of 2005, many automotive assembly plants started to lower the price of part to 50% utmost. While the unit cost of compact sedans increases 1,000 Yuan due to the gradually rising price of materials. In this situation the part manufacturers are under more pressure, heating up the competition between assembly plants and part manufacturers. However in the domestic market, a big majority of auto part manufacturers are suffering the double pressure of the rising price of materials from the market and the decreasing price of auto part from assembly plants therefore it is quite difficult to develop independently further. In contrast, such "pressure" has little impact on foreign-funded auto part manufacturers in China. Having patent and unique skill of their own, they are more freely to resist price risks from the market and even to expand their market scales and extend their distribution network. They win a lot in negotiations with Chinese local manufacturers and are more active than ever. Chinese local manufacturers took measures to diminish the pressure through adjusting and optimizing resource allocation, but seem in vain. In the long run, it is an inevitable trend for Chinese local manufacturers to merge and to reorganize.
Secondly, monopolization of foreign capital also threatens local auto part manufacturer. Foreign capital has obtained large market share in passenger-vehicle part market in China. Currently, foreign capital takes over 60% in Chinas auto part market. Foreign enterprises have sole markets of some auto parts, such as high-end electronic control, fuel injection system, transducer, brake system, steering system, etc. With an increase of total registrations, it is undoubted that the auto part industry will develop. While the best solution for Chinese local auto part manufacturer is to merge and reorganize.
Thirdly, the features of domestic auto part enterprise also decide their reorganization in the future. Along with the more intense market competition, problems caused by small scale, low concentricity and disorderly competition become more serious. Thereby, the government need support more, help R & D and accelerate the production of independent intellectual property right products; domestic manufacturers must integrate to complement each other and allocating resources rationally under the direction of market. Only in this way can they compete with foreign investors for a better market share.
