Car manufacturers purchase afterburner local parts

[AutoNews.com] Recently, several foreign automotive giants have made significant announcements regarding their increased procurement of parts and components from China. Volkswagen, the German automaker, has committed to purchasing approximately $1 billion in spare parts within the country. Meanwhile, Dai-Ke plans to boost its Chinese purchases by eight times in 2008, reaching RMB 6.7 billion. These moves not only offer domestic suppliers a chance to align with global automakers and enter their supply chains but also pose a challenge: meeting the stringent cost and quality standards set by these companies to secure a place in their global networks. Local procurement is increasingly seen as a strategy to cut costs. Today, multinational automakers have largely established their production bases in China, shifting competition into the local market. As market dynamics change, European car brands are struggling to keep up with the rapid growth of the overall industry. Industry insiders note that European manufacturers’ tight control over technology and product development has limited the operational flexibility of their Chinese joint ventures. Additionally, the lag in localizing parts and the lengthy certification process in Europe contribute to higher production costs, making their vehicles more expensive than those from Japanese, Korean, and American competitors. In response to rising price competition, European automakers are beginning to recognize the need for more flexible procurement strategies. Henning Eckel, Director of Purchasing at Volkswagen AG, emphasized that maintaining success requires an average 40% reduction in part costs. This shift has led to greater collaboration with local suppliers to reduce expenses. Similarly, Beitin Lin, Chairman of Dai-Ke Northeast Asia, stated that expanding procurement in China could help lower costs through scale. While $1 billion may seem modest, the level of openness from European manufacturers presents significant opportunities for domestic suppliers. It’s not just about reducing costs—it's also about gaining a foothold in the global supply chain. Volkswagen’s $1 billion procurement plan includes components, raw materials, and molds. Suppliers must meet strict criteria: competitive pricing (around 20% below market average) and adherence to technical and quality standards. The company is also focusing on localized procurement and expanding its sourcing in areas like metal, engines, and powertrain systems. For non-original suppliers, there are still chances, especially if they can meet Volkswagen’s quality requirements. Roman Magalle Kieblr, General Manager of Volkswagen’s Technical Department, noted that while Chinese products exported to Europe must be verified in Germany, certifications for FAW-Volkswagen and Shanghai Volkswagen can be done locally. Entering the auto parts supply chain is a long process. According to Wanxiang Group, it typically takes three years to become a supplier, involving stages such as design confirmation, development, trial production, and mass production. While the path is complex, it offers valuable learning opportunities for domestic companies to improve their technical capabilities. The current procurement trends reflect the strengths and weaknesses of the domestic component industry. Zhejiang Wanxiang Group pointed out that foreign automakers focus on cost-effective Chinese products, particularly in areas like piston rings, universal joints, brake pads, and stamping parts. In more competitive sectors, such as generators or shock absorbers, procurement is limited. However, there are growing opportunities in areas like car entertainment systems. HC Auto Research Institute’s Zhang Feng noted that certain components, like EBD, are currently beyond the reach of domestic manufacturers. However, companies like Fuyao Glass and Wanxiang Group have already carved out a niche in their respective fields. Supporting the automotive industry doesn’t mean only supplying original parts—complementary products can also serve as a stepping stone. Joint ventures also provide a viable route. Qu Guangjia, an import/export manager at Dongfeng Fuji Thomson Thermostat, explained that Chinese joint ventures often have an easier time passing certifications because their parent companies are already approved. However, this depends on the support from the parent company. To compete effectively, Chinese suppliers must improve product quality, offer competitive pricing, and align their development with that of automakers. While the road is challenging, especially in the auto electronics sector, those with unique advantages will find opportunities. For now, the journey toward becoming a global supplier remains a test of strength and perseverance.

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