A Report on the Development Trend of China's Auto-parts Industry (I)
By Gasgoo.com Auto Industry Institute From:Gasgoo.comMay 05, 2008
In China, the annual output of cars is reaching 10 million units, the car export grows by 35% annually, and the ownership of cars will hit 50-100 million units within a few years. This series of figures have indeed made China's suppliers of auto parts very excited for several years. But can all the auto-parts manufacturers have the opportunities to enjoy this grand feast? What will change in China's auto-parts market in the next five to ten years? And in which direction will the auto-parts joint ventures develop in the future?
To answer these questions arising from this transitional period, China's largest auto parts business portal Gasgoo.com has conducted in-depth interviews andsurveys with more than 60 executives from auto-parts manufacturersat home and abroad, international counselors, and seasoned industryinsiders. Based on their shared views on the possible situations,we have completed this report on the development trend ofChina's auto-parts industry, which can be used for reference by auto-parts manufacturers.
Part I: The golden growth period will continue in the next five toten years, during which the growth rate may oscillate.
Over the past five years, China's auto industry has seen unprecedented rapid growth. Meanwhile the auto-parts manufacturers have also had an extraordinary golden growth period, during which some of the companies have enjoyed the bumper fruits of the high growth. A great number of auto-parts makers have increased their sales revenues from tens of million yuan (US$1 = 6.98 yuan) to multi-billion yuan, and the product orders that some manufacturers have received are arranged for shipment until 2010 or later.
The three driving forces behind the rapid growth in China's auto-parts industry are the domestic original equipment (OE) market, aftermarket, and export market. Of the three factors, the OE market contributes the most. China's auto output increased from 3.25 million units in 2002 to 8.89 million units in 2007; the OE market of Chinese auto parts also grew from 190 billion yuan in 2002 to 500 billion yuan in 2007, with a net growth of 310 billion yuan.
The export market also had the biggest growth in the past five years, with the export volume rising from 15 billion yuan in 2002 to 120 billion in 2007, a net growth of 105 billion yuan.
The aftermarket had a relatively slow growth, but it also grew from 70 million yuan in 2002 to 120 billion yuan in 2007, with a net growth of 50 billion yuan.
The three markets reached a value of 740 billion yuan in 2007, and excluding the 80 billion yuan in imports, the output value of China's home-made auto-parts industry hit 660 billion yuan in 2007, more than triple the 200 billion yuan of 2002.
According to the survey by Gasgoo.com, over 80% of the executivesfrom China's auto-parts manufacturers are optimistic about the development of the auto-parts industry in the next five to ten years, and 30%-40% of the managers also have concerns about the slowdown or plateau after the drastic growth. It is our opinion that if China's economical and financial environments do not have any big mishaps, the auto-parts industry in the next five to ten years will remain to be one of the most promising sectors in the country and will maintain its high growth rate. However, short periods of oscillation in the growth are likely to occur as well.
Our optimism about the auto-parts industry in the next five to tenyears is based on the fact the essential factors that drive thegrowth of this industry will not change dramatically.
In the next five to ten years, China's auto production will reach 15 million units (including the exported-oriented ones) as conservatively estimated, with new vehicles to nearly double. The upgrade of many car models will bring more than double output value to the OE market.
Although the Chinese yuan appreciation is causing some difficulty in the export business, the problem largely affects the export to those countries that peg their currencies to the US dollar. In addition, thanks to the high added value of the auto export supported by the Chinese government, the export of China-made cars will not be influenced for long, unless the Chinese yuan rises to such an extent that most Chinese products will lose their competitiveness for export. The pattern of China's auto-parts export is also mostly shifting from the aftermarket to a mix of the aftermarket and OE market. Therefore, the value of China's auto-parts export in the next five to ten years will surely exceed that of 2007, and even may double that level.
The aftermarket will grow without doubt because China has more than eight million new vehicles sold every year, and a lot of cars that were bought before 2003 will have to be repaired from now on, and that will guarantee the faster growth of the aftermarket than in the past five years.
However, it is difficult to predict exactly what will happen in the future, so we do not rule out the possibility that the production and export of new cars in China will slow down simultaneously for a short period of time during the next five years. Auto-parts suppliers are strongly advised to adjust the pace of their capacity growth according to their available resources.
A Report on the Development Trend of China