Chinese Auto Parts Enter the Global Market
By KEITH BRADSHER
Published: June 7, 2007
http://www.nytimes.com/2007/06/07/business/07parts.html
JINZHOU, China â Zhao Qingjieâs favorite book, he says, is a Chinese translation of Lee Iacoccaâs autobiography.
Mr. Zhao, who runs one of the largest manufacturers of automotive starters and alternators in China, has long been interested in the United States. That should make his counterparts in the auto parts industry elsewhere very nervous.
âEntering the U.S. market is one of our key strategies,â said Mr. Zhao, whose company, Wonder Auto Technology, has obtained a Wall Street stock listing and is preparing to start exporting.
Chinaâs auto parts exports have increased more than sixfold in the last five years, nearly topping $1 billion in April and emerging as one of the fastest-growing categories of Chinese industrial products sold overseas. More than half of these auto parts go to the United States; most of the rest to Europe and Japan.
The rise of Chinese auto parts exports is part of a much broader shift. China is moving up from basic goods like textiles, toys and shoes and toward higher-value industrial goods that pay better wages â but also compete more directly with products from countries like Mexico and even from advanced industrialized countries like the United States.
Still, while China has room for considerable further growth in auto parts exports to the United States, it is not competitive overseas in bulky products like car seats that are uneconomical to ship or need to be manufactured close to a car factory for quality control reasons. And Chinaâs rising labor costs and strengthening currency are making automakers leery of becoming too dependent on China for parts that can be shipped.
The latest wave of auto parts exports is led by domestic Chinese auto parts manufacturers like Wonder Auto that are rapidly gaining strength and starting to enter markets around the globe.
Domestic manufacturers like Wonder and Wanxiang Group are relying on the same inexpensive Chinese assembly-line labor as multinationals like Delphi Automotive Systems and Visteon. But they can undercut the global giants in part by hiring talented but cheaper Chinese engineers and headquarters staff as well.
Soaring output at auto assembly plants in China is generating enormous demand for auto parts and creating the economies of large-scale production previously possible only in North America, Europe and Japan. And with at least a half dozen Chinese automakers planning to start exporting in the next few years, Chinese auto parts will soon be going overseas not just in crates but as part of fully assembled cars.
Multinational automakers set virtually the same quality standards for their operations all over the world. They are working closely with Chinese parts companies to help them meet these standards; once they do, they are allowed to submit bids for supplying factories elsewhere.
âThey get put on the global list and then can quote for anything worldwide,â said Nick Reilly, the president of Asian and Pacific operations for General Motors.
Chinese auto parts have surged in the American market as imports have declined from Japan, Canada and Malaysia and have stagnated from Mexico and the European Union.
China is strongest in electrical and electronic components and in cast-metal parts that require environmentally hazardous casting and a lot of manual labor for machining.
Feeling the pinch are small auto parts manufacturers and their employees in the United States, heavily concentrated in Ohio and mainly supplying larger auto parts companies instead of shipping directly to the big automakers.
While overall American industrial production is on the upswing, the troubles of the auto parts industry could become an issue in next yearâs presidential elections.
Ohio elected a new Democratic senator in November, Sherrod Brown, who favors a more aggressive American trade and currency policy, including the filing of legal cases with the World Trade Organization challenging Chinaâs currency, labor and environmental policies.
âItâs not a fair competition because over and over again in terms of currency and labor standards, China doesnât play by the same rules as we do in the United States,â Senator Brown said.
China is rapidly grabbing orders for replacement parts sold to repair garages. Wanxiang Group of China is already building up its distribution in the United States by buying Neapco, a steering shaft company in Pottstown, Pa., and striking a deal with Ford in April to buy its prop shaft business.
Many of these imports from China are simply replacing goods from other countries. New starters and alternators, for example, are no longer made in the United States, as production has moved to Mexico, Singapore, Malaysia and now China.
But used starters and alternators are still remanufactured in the United States, reusing the costly copper wiring in each device and selling them in the $1.5 billion market for replacement starters and alternators. Companies in this business, like Motorcar Parts of America with its headquarters and main factory in Torrance, Calif., have been struggling to compete with imports of all-new starters and alternators.
Mr. Zhao of Wonder Auto calculates that it costs him $4 million to set up an assembly line here in Jinzhou with mostly manual labor, employing 20 workers.
The combined wages of 20 workers here come to only $40,000 a year at the current exchange rate of 7.65 yuan to the dollar. That is in the range of annual base pay for one unionized auto parts worker in the United States and comparable to two nonunion American auto parts workers. Mr. Zhao recently explored and rejected the idea of opening a factory in the United States, after calculating that it would cost $10 million to set up a heavily automated line that would employ three workers.
Total benefits for 20 workers come to another $20,000 a year, Mr. Zhao said.
The companyâs wages of $170 a month remain respectable by the standards of this gritty refinery city of 800,000 in northeastern China. A small apartment without modern amenities like a refrigerator or air conditioning rents for as little as $40 a month, while even a large meal at the restaurant of the cityâs best hotel costs less than $3.
