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Competition drives China auto parts makers

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From PLASTICS NEWS June 09, 2011

SHANGHAI (May 17, 2:15 p.m. ET) -- With China’s auto market surpassing the United States as the world’s largest by number of cars sold -- and showing no signs of giving that up -- local plastics-related auto suppliers are boosting investments to handle the expected growth.

They include companies from large, established suppliers like Minth Group Ltd. and battery maker Camel Group Co. Ltd. to newer entrants like Hong Kong-based Eva Precision Industrial Holdings Ltd. Such companies are investing to grow capacity and, in some cases, to intensify efforts in new energy areas like electric vehicles.

Camel, for example, is one of China’s largest auto-battery manufacturers, with a market share of about 15 percent, said sales manager Scott Wei. The Xiangfan, China-based firm is in the midst of a three-year plan to double its capacity to 14 million batteries and 33 million pounds of plastic products, Wei said.

The company’s business in China is growing along with the local market — sales in China account for about 95 percent of revenues — because Camel’s brand name within the country gives it some pricing power, Wei said in a mid-April interview at the Canton Fair in Guangzhou.

Most local auto parts makers, however, have very little pricing power and face intense competition that weakens their ability to innovate, said Chen Kang Ren, president of China Auto Parts & Accessories Corp., a Beijing-based auto component maker.

CAPAC, which also operates industrial parks and a trade and research platform for China’s domestic auto parts industry, believes the country has too many small auto parts makers and they lack the economies of scale needed for healthier development, Chen said in a speech at an industry conference in April.

“This is leading to a fierce competition among suppliers so the [original equipment manufacturers] are taking an upper hand,” he said. “Some parts manufacturers cannot survive ... There will be a lot of consolidation.”

That mirrors the situation in China’s auto market generally, with growing sales volumes but less profit, said Charles Chesbrough, a senior economist with consulting company IHS Automotive of Englewood, Colo.

“There is not a lot of profit margin,” Chesbrough said at the Plastics News Executive Forum, held March 6-9 in Las Vegas. “It’s being taken away because prices have actually been falling quite dramatically in the Chinese market, and they need to have a little bit more price support so they can spend more money on the R&D, on quality, on safety issues.”

There are about 60 carmakers in China, but the government wants to consolidate that down to six or eight major vehicle manufacturers, a difficult but needed step, Chesbrough said.
Still, when measured by volume, the growth curve in China is steep.

The market for light-vehicle sales grew 51 percent in 2009 and another 30 percent in 2010, as the Chinese government heaped incentives on consumers to boost demand during the financial crisis, according to Chesbrough.

He said IHS Automotive projects slow growth for China, relatively speaking, to as much as 10 percent in 2011.

“China surpassed the U.S. in vehicle sales in the wake of this economic crisis, and there’s no turning back,” he said. “They’re going to continue on this upward trajectory, [and] while the U.S. is going to have this nice recovery … we’re just about going to get back to where we were at before in the 2000-01 time frame” by 2016 — with about 16 million to 18 million vehicles sold a year.

China, by contrast, is projected to be a market of about 30 million vehicles a year by then, he said.

Price competition aside, that growth potential is attracting investment from the larger, better-capitalized firms.

Hong Kong-listed injection molder Eva Precision, for example, opened a new factory in Zhongshan, China, in December to target the growing automobile manufacturing hub in South China.
Some of the larger local suppliers also are expanding into higher-technology markets within the auto industry.

Ningbo-based Minth Group, which has invested in plastic extrusion operations in the United States and Thailand, last year announced it was setting up a facility in Jiaxing, near Shanghai, to make parts for electric cars and possibly its own low-speed electric vehicles.