Recently, Dongfeng Electronic Technology Co., Ltd. (hereinafter referred to as “Dongfeng Technologyâ€) released the 2012 semi-annual report. The report shows that Dongfeng Technology's net profit attributable to shareholders of listed companies in the first half of 2012 was 73 million, a decrease of 15.48% compared with the same period of last year. The company explained that the decline was mainly due to the decline in sales in the automotive industry in the first half of the year.
Dongfeng Technology stated in its first half year report that the company’s problems and difficulties in its operations are: the overcapacity of automobiles is beginning to show up, and the reorganization and merger and consolidation of alliances will further exacerbate industry competition; foreign brand cars will release pressure based on market and production capacity, and reduce prices. The intensity has been further increased, which further squeezed the living space of self-owned brand cars. At the same time, foreign parts manufacturers set up factories in China, which will bring competition pressure.
Problems such as overcapacity and declining automobile prices caused widespread concern for vehicle companies. They began to be transmitted to local component manufacturers. Due to weak demand from OEMs and continuous reduction in procurement costs, component suppliers felt pressure.
60% of listed companies’ net profit declined
Dongfeng Technology is not the only domestic component company that has experienced a decline in net profit. Compared with Dongfeng Technology, Changchun Yidong (600148. ) (600148.SH)'s decline in net profit fell more significantly. In the first half of 2012, Changchun East achieved an operating income of 32.215 million yuan, a year-on-year decrease of 30.06%, and a net profit attributable to the parent company owner of 2.15 million yuan, a year-on-year decrease of 92.19%.
Changchun Yidong explained in its semi-annual report that the company’s product mix accounted for 50% of sales of heavy trucks, and that the products for cars and mini-vehicles were all supplied to its own-brand auto companies, and the sales volume of these two segments declined significantly.
In addition, Wanan Technology, Shunrong, Tianrun Crankshaft and Quanchai Power also experienced a net profit decline of over 50%. At the same time, Stellar Technology, Boyion Investment, Sunyang Bearing, Xiyi, ST Huanghai and Aerospace Six other companies also suffered losses.
According to data compiled by Gasgoo.com on auto parts companies, among the 67 auto parts companies listed on the Shanghai and Shenzhen stock exchanges, there were 41 companies with a drop in net profit, and another 6 parts companies suffered losses. In the first half of 2012, the operating income of these 67 companies totaled 142.672 billion yuan, a year-on-year decline of 5.3%; net profit dropped sharply by 27.4% to 7.893 billion yuan.
Alix Partners, an internationally renowned consulting company, recently stated in the “2012 China Automotive Industry Outlook†research report that the profitability of parts and components companies fell from a high of 10.8% in 2010 to 7.5% in the first half of this year.
Procurement tends to multinational component companies
Zhang Junyi, executive director of Roland Berger, said in an interview with reporters that local auto parts companies are being pressured by local auto companies to purchase multinational auto parts for quality improvement. In the coming period of time, the performance of local parts and components companies will decline.
The paradox of local auto parts companies is not catching up with local auto companies. Since Geely Automobile announced its transformation in 2009, Geely Purchasing began to move toward globalization in order to enhance product quality and brand reputation. Bosch in Germany, Faurecia in France, Germany's mainland, Hella, Brose and other multinational parts companies have become suppliers of local auto parts companies.
Not only Geely Automobile, but also Chery Automobile and Great Wall Motor have strengthened their dependence on multinational suppliers in the past two years. In April of this year, Chery Automobile's wholly-owned subsidiary, Wuhu Chery Technology Co., Ltd., assigned 60% of its subsidiary Actech Automotive Electronics (Wuhu) Co., Ltd. to Bosch, Germany, and the two companies jointly established a new company.
Recently, Great Wall Motors has just signed cooperation agreements with Delphi, Schaeffler and other multinational parts companies. As local auto companies start global procurement, orders for local parts companies are declining, and bargaining power with local auto companies is also declining.
It is imperative to enhance core competitiveness
"With the increasingly fierce market competition in the future, local parts companies must become opportunities to break through the market by improving their own capabilities and seeking opportunities to grow with the OEMs." said Zhang Junyi.
From the current point of view, compared with multinational parts and components companies, the technological capabilities of local parts and components companies are relatively weak, and they are even less capable of providing differentiated products to multinational parts and components companies. Some local parts and components companies that supply local automakers face the problem of reduced profit after the vehicle manufacturer's prices have been lowered, which reduces the cost of research and development.
"China exported about 850,000 vehicles last year and it can reach 1 million this year. The average export price here is 20,000 US dollars, and the average price we import is about 40,000 US dollars. Our export prices are very low, This will lead to a very low profit from the vehicle factory to the engine plant, so that there will be very little investment in the R&D of local spare parts. This will lead to the product quality being difficult to reach the required level. The result is a vicious circle - the quality is not good, the price The low price and low price have led to a low level of research and development. As a result, the market competitiveness has become weaker and weaker, said Ni Wei, ASIMCO's vice president, at this year's Global Automotive Forum.
Huang Yong, senior vice president of Great Wall Motors, said at the above forum: “If we only make strong adjustments to how the car should develop, without emphasizing how parts and components should develop, and how to achieve international competitiveness, our entire vehicle will never be able to become Internationally competitive industries."
Ni Wei believes that local parts factories can use this time to devote more time and energy to product research and development and product adjustments. In the medium and long term, China's parts and components industry can develop, and the use of this market is not too In a good situation, especially parts and components companies can spend more time doing some work on R&D.
Unlike local auto parts companies, which have increased their R&D investment to increase their own capabilities, Sichuan Boho, Ningbo Joyson, and CITIC Daycare have upgraded their technology through overseas acquisitions. "Acquisition of advanced overseas technology, but also can enter the international parts procurement system, if you start from scratch to develop parts and components, the time to enter the market is too slow." Bo Heng, chairman of Sichuan Bo Ping told reporters.
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