Commercial Vehicle Parts Industry Loopholes

Shiyan City, Hubei Province, is China’s truck capital. The cyclical dilemma faced by auto parts companies in the region is a sample of problems in the domestic auto parts industry.

The survival of commercial vehicle spare parts companies in China is in a difficult cycle.

“Shiyan City is the vanguard of China's commercial vehicle companies. The cyclical dilemma faced by auto parts companies in this area is a sample of problems in the domestic auto parts industry.” Li Jiang, Director of Preparatory Division of China Commercial Vehicle Parts Industry Promotion Center, told reporters "There are currently more than 300 vehicle companies in Shiyan, and there are thousands of related spare parts companies. The survival of Shiyan City's spare parts enterprises is in a difficult cycle to escape."

The inherent local fragmentation makes the parts and components companies mostly limited to commercial activities in the region, and it is difficult to form scale; the low-tech content causes the profits of the parts and components companies to be meagre, further causing them to expand the scale, and unable to invest more funds in technology research and development. Parts companies can only accept low-margin fate and continue to curl up and survive in a corner.

A sleepy sleepy

“Partners are only limited to serving the local vehicle companies, and it is difficult to achieve cross-regional docking, regardless of the docking of transnationality.” Li Jiang told reporters.

"This is related to local protectionism." A person in charge of an auto parts company told the reporter. In order to protect local auto parts companies, local governments usually do not welcome foreign parts and components companies to enter the local market.

It is very difficult for auto parts companies to get out of the region to get orders from foreign automakers, which can only be limited to local auto companies. Being trapped in a crash has caused auto parts companies to compete cheaply on a geographical scale. However, it has expanded beyond the region. Repeated investment and repeated construction among manufacturers have been very serious. There are only a few thousands of spare parts companies in Shiyan City. There are also a few companies with the same products. Apart from fighting prices, spare parts companies do not have a better way to get orders from vehicle companies. “Most parts and components companies are seeking vehicle companies and are trying hard to drive down prices to gain the favor of entire vehicle companies,” said a commercial vehicle parts and accessories company.

The more serious problem is that the market development model of auto parts companies still remains in the "one-on-one, point-to-point" market development approach. Li Jiang told reporters: "Most domestic commercial vehicle companies still have relatively simple marketing channels. They still rely on the salesperson model to conduct one-on-one public relations marketing for vehicle companies. Basically, one component company only serves one vehicle factory. The coverage is quite narrow, although some companies have started to develop foreign markets in recent years, but the characteristics of point-to-point are even more pronounced.Meanwhile, most domestic commercial vehicle parts and components companies do not have the right to export licenses, and the export platform is single.” Li Jiang stated that domestic commercial vehicles have zero Fitting companies can stand on the market completely relying on low-cost advantages.

“This will hinder the scale effect of the entire auto parts industry.” Li Jiang believes that the more serious consequences will be: in the long run, the profitability of parts and components companies is not conducive to the regional parts and components companies bigger and stronger. On the other hand, if the scale is small, it will not be able to invest more funds in technology research and development. The technical content of the vehicle will be difficult to increase. This will hit the entire commercial vehicle industry.

Li Jiang introduced that in some auto parts industries abroad, OEMs must listen to the opinions of accessories companies in the early stages of launching new models. Some foreign auto parts companies have the ability to come up with independent accessory technologies and solutions and even many zeros. When a parts company negotiates with a vehicle manufacturer, it has the right to decide which vehicle manufacturer will supply the parts, which model models will be provided, or which parts will be provided. He said: “The auto parts companies in China are completely passive. They are completely in line with the wishes of the entire vehicle company. In some cases, they even perform simple OEM production according to the design of the vehicle companies.”

Hard to achieve

"Commercial vehicle parts and components companies do not usually do because of marketing problems, or there are problems with funding." A commercial vehicle industry told reporters.

The single marketing is due to the limited segmentation of commercial vehicle parts and components companies, which determines that they can only maintain customer relationships through a peer-to-peer model. The financial issues also determine that it is difficult for parts and components companies to invest heavily in technology research and development.

Li Jiang believes that: "The nationwide repeated construction has caused spare parts companies to fall into the mud of price competition, which has caused serious capital wastage. A complete cake has been divided and fragmented, making it difficult to produce large-scale production, thereby making them profitable. If you can't go up, it will be difficult to make significant investments in follow-up R&D."

Commercial vehicle parts and components companies are industries with a high degree of segmentation, and most of them are emerging individual companies. For these small companies, the capital pressures for the initial investment are already high, and the profit after the production is not high, so it is relatively difficult for them to increase investment in R&D. A representative of a vehicle torque production plant told reporters: "In recent years, the raw material prices for spare parts have been rising, and companies need to pay a large part of their raw materials."

Although there are many problems faced by commercial vehicle parts and components companies, most companies still survive. The key lies in the demand for vehicle manufacturers. Although the profits of parts and components companies are very low, the cost is not very high. "The company's production is, after all, less technical spare parts, labor costs and manufacturing costs, the demand for liquid assets is still less." Li Jiang told reporters.

The problem of route selection in OEMs is also an important reason why spare parts companies are facing difficulties. Li Jiang told reporters that most of the domestic commercial vehicle manufacturers are doing whatever models and types of products, which is not conducive to product segmentation, which is not conducive to the breakdown of auto parts companies, and it is not conducive to the parts companies to concentrate on a certain Subdivided products. Most enterprises only pay attention to current production, and do not attach importance to the protection of intellectual property rights. "Apart of commercial vehicle parts and components, even if they have technology, products, and no patents, they do not even know what patent protection is."

Of course, the low-end technology and profitability of commercial vehicle parts and accessories companies are also related to the characteristics of commercial vehicles. “Commercial vehicles are different from passenger vehicles. Commercial vehicles are an investment tool. Customers are paying attention to its price/performance ratio when purchasing. As long as it is strong and durable, the cost of the acquisition can be effectively offset by the value created in use. Therefore, commercial vehicles have fewer requirements for the refinement of spare parts and less technical content,” said a commercial vehicle industry official.

But another reality is that the demand for the refinement of commercial vehicles has gradually begun to appear. Some commercial vehicle giants abroad have begun to elaborate on the configuration requirements. At present, many large-scale commercial vehicle enterprises in foreign countries have already entered the domestic market in large numbers and have brought major challenges to domestic commercial vehicle companies. "The thing that the parts and components companies should do now is to optimize the structure, enhance the technological competitiveness, and strengthen the development capabilities of market channels," said Li Jiang.

Due to the lack of necessary follow-up funds to expand production capacity, and there is not enough funds to support R & D, most spare parts companies are still limited to point-to-point marketing model, it is difficult to get out of the regional market, it is more difficult to become a well-known parts and accessories companies. Hard-to-finish commercial vehicle spare parts companies are still struggling in the era of meager profits.

At present, automotive spare parts enterprises are caught in two difficult circles: one is that local protectionism seriously causes one-to-one marketing of parts and components companies, and its market development capacity is insufficient, and it is difficult to form a scale effect. Therefore, it is in the entire commercial vehicle industry chain. There is no right of decision, and it is completely reduced to a foundry; enterprises are in low-price competition and do not pay attention to intellectual property protection, which in turn increases local protectionism. The second problem is that low-tech content leads to low profits, which in turn makes it difficult to sustain R&D funds, which in turn results in low technical content.

This is the cyclical dilemma faced by auto parts companies.

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