China's auto parts market still faces enormous pressure and risks next year

Xinhuanet Wuhan, December 19th (Reporter Yang Xingguo) In 2006, China's auto parts market will continue to face pressures such as high cost of resource prices, market price cuts in successive years, and intellectual property protection. Weng Yunzhong, executive deputy general manager of the Parts Business Department of Dongfeng Motor Co., Ltd., made this market forecast at the just-convened 2006 business conference.

It is understood that from January to October this year, the cumulative sales volume of domestic commercial vehicles in China fell by 1.23% over the same period of last year. Intense competition has led to a sharp decline in the profit level of the automotive industry, and the average profit rate of vehicle manufacturers has dropped to around 5%. Under the dual pressures of resource price increases and product price cuts, auto parts companies have become more difficult to manage and profit margins have shrunk. Experts estimate that the industry’s average profit has fallen by more than 80%, and most companies’ operations have been the most difficult in recent years. period. This year, the production and sales of Dongfeng Commercial Vehicles has been at the leading position in the domestic industry. Affected by this correlation, the Dongfeng Parts Business Unit’s revenue from passenger vehicle products increased by 34.2% over the same period of last year, and its export revenue increased by 77.7% from the same period of last year. The overall operation is still falling, but it is better than the majority of companies in the same industry.

When analyzing why the business performance of Dongfeng Parts Business Unit is better than the industry level, Weng Yunzhong believes that it mainly benefits from the efforts in five areas:

The first is to comprehensively promote the improvement of QCD (quality, cost, and delivery time), and provide more competitive products for vehicle and host companies. Some subsidiaries, such as Dongfeng Bridge and Dongfeng Transmission, closely focused on improving quality, reducing costs and improving services. From January to October this year, 880 projects for improvement were completed. In terms of cost reduction, we will focus on advancing technology to reduce costs, accumulatively excavate 337 proposals for cost reduction of technologies, and from January to October, 238 projects have been implemented, and the technology has reduced costs by more than 53 million yuan. In terms of quality management, each of its subsidiary companies continued to strengthen its quality standards, strengthened its quality control capabilities, and further improved product quality.

The second is to carry out user visits, strengthen information exchange and communication, and strengthen strategic partnerships. Since the beginning of this year, the Parts & Components Business Department has visited companies such as Shenlong, Dongfeng Liuzhou, Beiqi Foton, and Guangxi Yuchai, not only to understand the loading of Dongfeng parts at the assembly site, but also to solve related problems in a timely manner. The future direction of the development of each vehicle and mainframe enterprise, early intervention in the development of each user's early stage, won the opportunity for further cooperation.

The third is to accelerate the development of new products and keep pace with the development of complete vehicles and host companies. A total of 417 million yuan was invested this year, focusing on new product R&D and capacity building, speeding up the development of new products, striving to keep pace with the entire vehicle and main engine plant, heavy-duty vehicle transmission, 13-ton bridge, air suspension, ABS, driving records Breakthroughs were made in the R&D and construction of key components such as instrumentation and eddy current retarder. The Dci11 engine and the D310 cab of the Dongfeng Commercial Vehicle Co., Ltd. respectively developed 84 kinds and 430 kinds of component assemblies and components. In 2005, the accumulated sales revenue of new products was nearly 200 million yuan.

The fourth is market-centered optimization of organizational structure. In August of this year, the Components Business Unit optimized and adjusted its organizational structure and established seven functional departments and party committees including the General Management Department, Personnel Department, Business Planning Department, Manufacturing Management Department, Strategic Development Department, Financial Management Department, and Market Technology Department. The work department and the work department of the trade unions have two party and group departments, and have reorganized business processes and work functions.

The fifth is to promote international cooperation, improve the technical level, and provide customers with products with higher technological content and high added value. In June of this year, Dongfengqiao Bridge and Dana Corporation of the United States jointly formed Dongfeng Dana Axle Co., Ltd., the largest joint venture company of Dongfeng Components. Then, the business cooperation area with Cummins Inc. expanded from the intake system to the Exhaust system. The introduction of new products and new technologies through international cooperation has laid an important foundation for the simultaneous development of Dongfeng components and domestic vehicles and host companies.

Weng Yunzhong pointed out that due to the decline in the sales volume of domestic commercial vehicles in 2005, many commercial vehicle parts and components companies were in trouble. Therefore, China's auto parts business will continue to face tremendous pressure in 2006, mainly due to pressures from four aspects: the pressure of resource prices leading to high costs, the pressure of the market to reduce prices year after year, the pressure of intellectual property protection, and The difficulty of clearing the accounts.

With the development of China's economy, the scarcity of resources will become an unavoidable reality, and the price reduction of resources will be very limited. Moreover, even if the resource prices will be lower than this year next year, it will be difficult for parts and components companies to expand their profit margins after meeting the requirements of the continuous price reductions of the host plants. The Dongfeng Components Business Group has calculated the capital preservation point of each subsidiary this year. The results show that some subsidiaries have not reached the cost-protection point in the years when their sales revenue was highest in history. Even if the automobile market situation improves next year, these subsidiaries will have difficulty. Achieve capital preservation. Therefore, Weng Yunzhong believes that Chinese auto parts companies must not wait for resources to cut prices and wait for the market to turn for the better. They must fully recognize the pressures and risks they are facing and, starting from their immediate perspective, strengthen their ability to combat market risks by strengthening their internal management. .

It is understood that in 2006, the minimum goal of the Dongfeng Components Business Unit is to achieve overall turnaround, and strive to achieve 50 million yuan in interest before tax. They changed the business model of “taking the field as the center, products as the guide, and on-site driving the market” as the business model of “taking the market as the center, technology as the link, and the market as the driving force”, and adopted the following measures to ensure the realization of the development goals. :

--Strengthen the strategic partnership with major customers, establish a cooperation model of win-win and harmonious development with vehicle and component companies, and continue to deepen internal potential, strengthen management, increase efforts for improvement and improvement, and commit to technological innovation. , To provide first-class products and first-class services for vehicles and host companies, to contribute to the improvement of the competitiveness of vehicle and host companies, and to form closer cooperative relationships with complete vehicles and host companies to achieve simultaneous development.

-- Through the adjustment of organizational structure, cleanup of business processes, promotion of optimization of non-core businesses, etc., the Company has achieved a full range of optimized allocation of internal resources, reduced operating costs, improved operational efficiency, leveraged overall synergies, and enhanced market response and service capabilities. In the end, the overall competitiveness and profitability of Dongfeng Parts Enterprises will be simultaneously improved, and the simultaneous development with the market and customers will be maintained.

-- Using cost-reducing technology and QCD improvement as a means to continuously optimize costs and quality. In-depth promotion of technology to reduce costs, from the internal proposal to expand to cooperation with customers, suppliers, through technological advances to absorb the pressure of resource prices. Strengthen quality standards and quality improvement, improve the physical quality of products, and reduce the rate of claims. Strengthen SCM management, optimize business processes, and improve delivery punctuality and efficiency.

-- To establish a service system with two levels of business units and subsidiaries, grasp the market's development direction from a strategic height, use advanced and mature technologies, and continuously improve management, starting from the customer's early product planning and R&D, and technical solutions and cost targets. In terms of such aspects as providing customers with more professional and more efficient services.

-- Increase investment in research and development to provide technical support for product upgrading of vehicle and host companies, and rely on technology to stimulate the market.

--Establish effective management and control, standardize the behavior of all subsidiaries, and reduce the company's business risks.

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