Auto parts profits soar, but domestics lag in technology

By Sun Zhe

The profit margin of China's car industry doubled in 2009 to reach 9 percent, the largest in the world, according to a report released earlier this month by US consulting firm AlixPartners. The report was based on surveys of 50 major domestic auto part producers from January to March of this year.

The profit margin of China's auto component business was two percentage points higher than for finished automobiles, with 2009 auto component sales up 23 percent year-on-year to total 1.14 trillion yuan ($167 billion).

The average profit margin of auto part makers in Europe, Japan and the US is less than 5 percent. The situation was quite the opposite in 2008 and 2007 when Chinese auto part makers' profit margin fell behind their Japanese and European counterparts.

The profit margin growth of Chinese auto part makers mostly comes from the country's soaring car market and cheap material and labor costs, according to Ivo Naumann, director of AlixPartners' Shanghai office.

Auto sales grew 46 percent in 2009 from a year ago to total 13.64 million in China, the world's No. 1 auto market, according to the China Association of Automobile Manufacturers.

However, Naumann noted in the AlixPartners report that part makers need a technological edge and better after service to keep the growth rate on an increasing track.

China's auto parts market is still controlled by international makers, because domestic companies mostly rely on foreign firms for key technologies, said Meng Li, a Beijing-based industry insider, todl the Global Times.

"Like in many other industries, China is barely an assembly base," Meng said.

About 80-90 percent of the profit of China's auto market goes to foreign brands, Shang Zhoudong, another Beijing-based industry insider, told the Global Times.

The relatively high car price in China also helped the auto part makers widen their profit margin, Shang said.

Meng predicted that 2010 auto sales would grow about 15 percent from last year.

However, the auto part industry may be challenged by the increasing price of raw materials and the possibility of a car price decline, both of which would cause difficulty for auto part makers, the AlixPartners report said.

Explore the World, Understand China!
Please log on www.gloaltimes.cn