Auto part export opportunities accelerate in ChinaAuto part export opportunities accelerate in China
April 1, 2007
As the U.S. automotive market lags, and its biggest suppliers and OEMs retrench, halfway across the world a booming automotive market in China is providing new export opportunities for the same U.S. firms.
Helping U.S. companies seize on those opportunities, is the U.S. Commercial Service, a branch of the U.S. Department of Commerce that seeks to promote American goods and services for export. “If there’s a parts manufacturer from the U.S., I’ll try to set them up with meetings with OEMs, their purchasing offices, and with a potential agent or distributor,” says Yu-Chien Chen, senior commercial specialist for the U.S. Commercial Service from his office in Shanghai.
The U.S. Commercial Service now has branches in 20 Chinese cities, and on the intellectual property rights front, it plans to open three patent and trademark locations there.
The Chinese automotive market remains highly segmented, with five to six distinct regions based around major, and growing, metropolitan areas like Shanghai, Guangzhou, and Beijing, that are served by more than 100 OEMs.
The U.S. Commercial service has regularly tracked 48 OEMs, but of these, more than half claim less than 1% of the market, according to Chen. German automaker Volkswagen (VW) claims the largest share of the market, with 60%, although five years ago it had staked out 80%.
The opportunities for Western automakers in China are sizable, but they cannot be realized alone, with Chinese law requiring OEMs, and even larger Tier suppliers like Delphi and Visteon, to operate with partners. “That’s probably set for a while because this is one of China’s key industries, and they’re very protective of it,” Chen says. In addition to forcing foreign firms to work with partners, China has 25% tariffs on new autos entering the country and a general 10% rate for parts.
Wary of uncontrolled growth or an overheating market, the Chinese government has attempted to put the brakes on automotive growth, raising the bar on new plants so that an OEM must sell out 80% of their existing capacity before they bring more online. Chen reports that as of now, total Chinese capacity stands at 8 million vehicles/yr, with more than 2 million in annual vehicle production in the works.
“Experts in the industry say this is a lot like the 1920-30s in the U.S.,” Chen explains, “where you had so many different car manufacturers and then they slowly filter themselves out, they go under, they get merged, they get bought out, etc.”
Hot markets
Chen says that since the country did not meet its goals from its last 5-year plan, environmental standards are drawing renewed interest, and any components related to emission controls are likely to find eager buyers.
Another growing segment is aftermarket, since 70% of the cars on Chinese roads are under four years old, and the average time frame before cars require significant service is four to nine years. Since there is very little financing of cars in China, and virtually no used-car market, vehicle owners often have their auto for the duration, and are willing to foot service costs.
“Fortunately, the U.S. has a good name here, so when [Chinese car owners] go into this garage or this repair shop, they’ll look to purchase a foreign brand, and often that’s a U.S. brand,” Chen says. The Chinese government doesn’t allow refurbished parts to enter the country, since often, even after life in a previous auto, these used parts are of better quality than locally made ones.
The potential growth for American exports into China, in aftermarket and original parts, remains significant, however, with the U.S. at only 4% of auto and accessory imports in 2005, behind Japan (31%), South Korea (26%), Germany (19%), Taiwan (8%), and France (5%).
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