08-09 Auto Parts Industry Research Report
In 2008, despite a sharp decline in the overall auto industry due to the global economic downturn, China's automotive parts and components sector demonstrated robust growth. The total revenue from core operations reached 948.075 billion yuan, reflecting a 23.85% increase compared to 2007. Sales value hit 927.977 billion yuan, up by 24% year-on-year. Moreover, the share of parts and components output in the total vehicle value rose from 72% in 2007 to 82.6%, showcasing the sector’s growing importance.
However, the development of the spare parts industry still lags significantly behind the rapid expansion of the automobile industry. Since China's reform and opening-up in 1978, the domestic auto industry has grown into a key pillar of the economy. By 2007, China had become the third-largest car producer globally, with its share of global car output increasing from 3.6% in 2000 to about 12%. While the parts industry has made progress, it remains far behind the vehicle manufacturing sector in terms of innovation, scale, and competitiveness.
The lag is evident in several areas: weak R&D capabilities, low profit margins, small company sizes, and limited overall industry strength. Domestic auto parts firms invest less than a quarter of what their foreign counterparts do in R&D, leading to technological disadvantages. In 2007, the average monthly profit margin for the sector was around 7%, one of the lowest among industries. Most Chinese auto parts companies are small-scale, with only a few hundred enterprises exceeding 100 million yuan in annual revenue.
There is also a significant disparity in the strength of parts companies. According to research from Beijing Hong Rui Xinsi Management Consulting, there are over 15,000 auto parts firms in China, but fewer than half operate at a large scale. Only a handful of companies can reach the 100 million yuan threshold, while most are SMEs struggling to compete.
Another major challenge is the double squeeze from both upstream suppliers and downstream OEMs. Upstream raw material providers, often large multinational corporations, use their market dominance to dictate prices and supply conditions, leaving smaller parts manufacturers with little bargaining power. Meanwhile, OEMs frequently pressure parts suppliers to lower costs, sometimes even shifting operational burdens onto them.
This pressure is compounded by frequent order changes, which create uncertainty and increase production costs for parts companies. Many OEMs now require third-party inventory systems, further complicating logistics and reducing control for parts manufacturers. These practices highlight the imbalance in power within the supply chain.
Despite these challenges, the auto parts industry in China has shown strong clustering effects. There are 103 major industrial parks across the country, mostly located in eastern coastal provinces like Jiangsu, Hebei, Zhejiang, and Fujian. These clusters have fostered collaboration and resource sharing, although many individual companies remain small. Some parks, such as Tiexi in Liaoning and those focused on filters in other regions, have developed strong local ecosystems that support related industries.
Foreign capital has also played a major role in shaping the sector. Over 70% of the world’s top 100 auto parts suppliers have established operations in China, with more than 1,200 foreign-owned parts companies active in the market. In 2006, foreign firms captured the majority of the market share, with domestic companies accounting for just 20-25%. The implementation of new import regulations in 2005 further accelerated foreign investment, leading to a surge in partnerships and projects.
Regionally, the industry is highly concentrated, with the top ten provinces accounting for 80% of the market. Provinces like Zhejiang, Jiangsu, Guangdong, and Shanghai dominate, while Chongqing stands out for its strong presence driven by Changan Automobile. This regional concentration indicates the formation of clear industry clusters.
To address these issues, Hong Rui Xinsi proposes a "segmented development plan." It suggests that high-end parts producers should gradually move away from joint ventures and invest more in R&D, aiming to develop indigenous technologies. For the remaining 90% of the market, companies should be divided into different tiers, with some transitioning toward mid-range products and others focusing on improving efficiency and quality before moving up.
Ultimately, the goal is for high-end products to lead the market, mid-range products to occupy a significant portion, and low-end products to be offloaded to less developed regions. This strategy, though long-term, could help Chinese auto parts companies grow stronger and gain more independence in the global market.
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