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China's auto parts industry may lose $16b in orders

(chinadaily.com.cn)
Updated: 2009-09-04 17:10

As a result of the appreciation of the renminbi and price increases of the raw materials, the cost of auto parts manufactured by Chinese producers for export increased by 16 percent this year, according to the latest research by AlixPartners, an international consultancy. And in 2010, China's auto parts industry may lose orders worth $16 billion, Shanghai Securities News reported today.

Out of all suppliers of the component parts in cars, only tire makers are able to pass the entire cost of the raw materials price increase on to consumers by raising prices, because large tire makers enjoy a near-monopoly on the market. Most other suppliers were forced to simply make lower profits and keep their prices the same because of a lack of power in the market.

Sun Muzi, an analyst with the Essence Securities, said only car-parts suppliers in a comparatively monopolized position like tire makers or major suppliers like auto parts giant Bosch Group will be able to handle price rise pressure relatively well. The vast majority of the small-sized car-parts producers will suffer, Sun said.

According to statistics released by PAC, a global consultancy, in 2008, the total car components purchased by car manufacturing giants GM, Toyota and Ford in China were $8 billion less than expected. In 2010, the total purchase by the three giants may decrease by $16 billion. This is the result of the increase in raw material prices in China, which has prompted the car manufacturers to look elsewhere for better prices.

Dong Jianping, Vice Secretary-General of the China Association of Automobile Manufacturers said that it is therefore urgent for China's car-parts manufacturers to develop products with high added-value and sophisticated technology in order to compensate for their higher prices.