China's spare parts companies will struggle to absorb costs in 2004

At the beginning of the new year of 2004, several car factories have begun to raise the flag of price cuts. Industry insiders have pointed out that this year the auto market will continue to stage the 2003 price cuts. On the other hand, due to the spur of domestic investment, the price of raw materials showed a rapid upward trend at the end of 2003 and the beginning of 2004. Undoubtedly, the cost of the declining vehicle plant and the cost of raw material price increase are bound to be digested by the parts factory.

Since January 1, 2004, the domestic automobile market has begun to lower prices. Industry insiders joked that this year is a continuation of the price reduction in 2003. 2003 was an extraordinary year for the automotive industry. First of all, the annual production and sales of automobiles exceeded the 4 million mark; at the same time, in 2003, the assembly plant has implemented the price reduction slogan from the beginning to the end. Industry experts predict that: In 2004, automobile prices will continue to maintain a downward trend of 8%. In stark contrast to price cuts, raw materials for vehicles continue to rise. Taking steel as an example, the current market price of domestic hot-rolled sheet has reached 3,800 yuan (458 US dollars / ton) (including tax), and the medium-plate price also reached 4100 yuan (494 US dollars / ton). The price of raw materials, prices of raw materials, and parts manufacturers in the middle will be what kind of situation? In the first week of the New Year, the reporter interviewed the heads of several small and famous domestic parts and components companies.

Henan Jingchuan Shock Absorber Factory is currently the largest shock absorber production plant in China, and also a supporting manufacturer of Jetta car shock absorbers. The director of Xing, who is in charge of technology, said that they have adopted several methods to deal with the rise of raw materials. First, look for alternative materials to reduce product costs. Xing Changchang said that some of the materials used in vehicle shock absorbers can be replaced with other materials, such as the outer cylinder of shock absorbers. The original precision tubes were used. Now, the ordinary tubes are used in Luanchuan. During the processing, we took some technical measures. After experiments, it was deemed feasible. The quality standards of substitutes were in full compliance with the technical quality requirements, but the cost was greatly reduced. Second, the choice of incoming materials is more stringent. The original material used was indefinite-foot materials. The material utilization rate was very low and waste was serious. Now that we are using fixed-length orders, material utilization is significantly higher than before, and costs have dropped significantly. Third, on the supplier's choice, we had only one, and now we have increased to two or three companies. The purpose of doing so is to implement the comparison of three companies under the same quality.

With the same shock absorbers, how did Shanghai Huizhong, an accessory manufacturer of Santana, do it? Huizhong's reply to the reporter is: Although the cost of raw materials has gone up, we have not raised the price requirement for OEMs. Normally, the OEM will only give you an indicator of price reduction and will not give you an indicator of price increases. The shock absorbers we produce generally do not use raw materials directly, but come in semi-finished products. It should be said that the price increase of steel products has a great impact on the processing enterprises of precision steel tubes. Now, the status of the steel market is that even if the prices are high, the steel products in the first quarter cannot be set. For example, Baosteel's old customers, originally sold you 600 tons, can now only sell you 200 tons. The reporter learned from a veteran of a precision steel pipe company that a host plant can bear 50% of the cost of a profitable product that is rising by 100 yuan per ton when the material cost continues to rise.

Speaking of the selection of upstream steel suppliers by parts companies, Huizhong said that parts manufacturers usually use the steel supplier specified by the OEM. Even if they know that the quality is better, they are not easily replaced due to the replacement of steel. It is very troublesome for suppliers and OEMs to re-do all kinds of road conditions. Therefore, OEMs will not agree unless they can consider new products.

If the OEM is adopting such a direct pressure on independent component suppliers, what will be the attitude of its own wholly-owned parts factory? The reporter interviewed SAIC's wholly-owned parts and components company Shanghai Automotive Forging General Plant Steel Ring Manufacturing Plant. The plant is currently the sole supplier of Nanjing Fiat and Hainan Mazda. The person in charge of the factory sales department frankly stated to reporters that they are mainly adopting the following methods to deal with the current market conditions: First, the in-service employees of the company are waiting to be posted and are to be retired. The factory stipulates that female employees are under the age of 45 and male employees are at work. Under the age of 50. Proper preferential policies are given to the post-waiting and post-retirement job-shops; the second is to increase class output, and the original class output is 1,200, which is now increased to 1,500. The person in charge said that employees' awareness of quality has generally improved and that they are aware of market conditions outside the country. Production has gone up and quality standards have not decreased. The original OEM's car price dropped by 10%. All of the reductions were made to the parts factory. Now the situation has improved. They are all wholly owned subsidiaries of SAIC. We all understand each other better. If the vehicle price is reduced by 10%, the vehicle will be full. The factory itself assumes 5%, and the parts factory shares 5%. The person in charge said that the condition of the parts factory is very difficult now. In order to maintain market share, it is sometimes necessary to lose money. For example, SAIC Yizheng's products, because of the small output of only a few thousand vehicles, lose money, we mainly from the long-term considerations, to keep market share; two are marginal, to keep costs; a few are making money.

Everyone who knows how to make a car knows that a car consists of more than 10,000 parts and components. China has thousands of large and small parts and components manufacturers. Industry experts said with concern: At present, the status quo of China's spare parts enterprises is scattered, chaotic, and poor. Sparse refers to dispersion; chaos refers to competition disorder; poor, refers to weak technical power. During the years of reform and opening up, especially since the accession to the WTO, joint ventures and wholly foreign-owned enterprises have begun to invest in factories and implement localization strategies in China. Facing the world-famous parts suppliers Delphi, Visteon, Bosch, and Japan Denso's massive incursion and the direct involvement of the domestic steel industry in the auto parts supply chain, China's struggling Chinese parts and components companies will face even tougher competition. Parts industry is a new shuffle.