China's auto parts trade encounters pains

2022-07-25
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What is still fresh in our memory is that last year, Hyundai Mobis said that it would close an overseas factory and build a new electric vehicle parts factory in Ulsan, South Korea. At that time, it did not mention China

when preparing to invest in South Korea, the global parts supplier quietly cut its production in China

Hyundai Mobis is one of the three main forces of Hyundai Kia automobile group and the seventh largest auto parts supplier in the world

China is the source of global auto parts and materials. Such adjustments have fully explained a problem - the future industry growth may skip China and turn to other production places

although China still exports billions of dollars worth of auto parts to automobile manufacturers in North America and other regions every year, the situation has changed in the past two years. At the same time, China's parts trade has suffered multiple challenges, and the sales volume has been significantly lower than in the past

the trade war initiated by the trump administration led to the imposition of punitive tariffs on Chinese products exported to the US market. Soon, other competitors took advantage of the situation and found feasible low-cost manufacturing places to compete with Chinese factories. This is one aspect

on the other hand, a new trade agreement proposed by the United States, Mexico and Canada will benefit the latter two. Mexico, in particular, has become a more attractive potential supply base

more importantly, the spread of the COVID-19 has led to the closure of factories worldwide, making automakers more alert to the previous practice of relying on supply lines on the other side of the ocean

Hyundai Mobis is not the only company that has responded in this way

recently, a supplier of exterior parts for Mazda in Guanajuato, Mexico, increased its production capacity by 50% in order to transfer an assembly line from Jiangsu, China. According to Reuters, Mazda will add an additional cost of more than US $5 million due to the increasing logistics challenges faced by Chinese parts

correspondingly, minshi group from China has also established business in Mexico. Minshi group is a supplier of interior and exterior parts, which supplies to a number of North American automobile manufacturers. Last year, its global sales reached $2billion, of which $419million was sold to North American customers

two years ago, it was almost inactive and kept a good shape. Another Chinese parts supplier, Minghua company, operated a factory in Greer, South Carolina to produce and supply injection molded parts for BMW's American factory nearby

according to the data of the China Mexico research center of the National Autonomous University of Mexico, in order to support the growing customer base in North America, Minghua company said that it would no longer transport goods from China, but would invest US $33.9 million in Puebla, Mexico, to supply Volkswagen Group and Audi locally

it is worth noting that this capacity transfer is only part of the broader adjustment of the industry, that is, the "return" of automotive products to North America and the withdrawal of production from China

"before the COVID-19, you may have heard that enterprises talked about 'offshore production' and 'return production'. These are not new terms." Jennifer blackhurst, a professor of business analysis at the Tippie School of business at the University of Iowa who studies supply chain risk management and supply chain shortening, said, "but the factual result of the COVID-19 - the closure of the supply chain, people fell into panic, and people began to really examine the need to find the best way to design and manage the global supply chain."

01. Redesign the supply chain in the past 10 years, as the source of auto parts in the United States, China has developed rapidly, largely thanks to low labor costs. Today, rising labor and production costs in China have forced many companies to look elsewhere

other Asian countries are catching up. The emerging manufacturing industries in Vietnam, India and Thailand have gradually eroded the Chinese market

in addition, the new agreement between the United States, Mexico and Canada (usmca for short) began to promote automobile manufacturers to actively seek supply in North America

the North American Free Trade Agreement, the predecessor of usmca, stipulates that if imported vehicles contain 62.5% North American ingredients, they can be exempted from tax. Usmca will raise the threshold to 75% within 3 years, and attach various regulations. This will put new pressure on carmakers to find supply sources from the United States, Mexico or Canada

China has felt the impact of this transformation

according to the data of the U.S. Department of Commerce, in 2019, the U.S. imports of auto parts from China decreased by nearly a quarter to US $15.3 billion. Over the same period, US imports of parts and components from South Korea increased by nearly 10% to US $9.1 billion; The import of spare parts from Thailand increased by nearly 23% to US $4.3 billion; Imports from Mexico increased by 3% to US $61.6 billion

affected by the epidemic, the import of Chinese parts and components has further decreased this year

"although not all parts will be moved back to the United States, many companies are beginning to focus on redesigning the supply chain." Blackhurst said, "in the future, more companies will review the supply sources, but it is not easy to switch."

she added: "in the coming period, we will see more enterprises choose to enter low-cost countries or return to the United States, because China's current environment poses risks to the supply chain."

it is a trend for manufacturing industry to return to the United States, not only the automobile industry

according to the 2020 return index of Kearney, a consulting firm, US imports from China decreased by 17% last year, which means that Chinese products worth about $90billion have been replaced

on the other hand, US manufacturing imports from other Asian countries increased by US $31billion, nearly half of which came from Vietnam

Doug Mehl, partner of Kearney automotive business unit, said: "there are many competitive countries, such as Indonesia, South Korea and other countries, which have the ability to produce high-quality automotive products. For OEM factories, shortening the supply chain is a better choice, so that they can respond immediately to changes in sales or logistics."

"the best case is to shorten the supply chain and have a cost-effective workforce." He added

a GM spokesman said that despite the challenges in the Chinese market and the impact of the epidemic, the company's procurement strategy will not change

the spokesman said that China's primary supply channels for North American factories are limited to a small number of specific parts. "We will continue to evaluate all possible situations. As part of the constantly adjusted decision, we do not expect any major changes in the current procurement strategy." He said

02. Beneficiaries and Chinese advantages Michael Dunne, CEO of Zozo go consulting, which has cooperation with Chinese manufacturers, believes that China's transformation is gradual. This change is more of a marginal adjustment aimed at minimizing the risk of putting all your eggs in one basket

Dunn said that the joint impact of Sino US trade tensions and the COVID-19 has forced suppliers to ask themselves, "we should be smart on this issue. There are many other markets in Asia, and we can spread our product portfolio to these regions. We will see the process of enterprises rediscovering the market. These markets themselves are large, dynamic and full of potential."

however, he still believes that China will still be an advantageous combination of efficiency and scale, which is difficult to compare with other regions

"China is a behemoth in terms of field and scale." "Any talk about moving the supply chain out of China must take into account that even if it is only to serve the huge domestic market in China, most of the existing facilities will remain," Dunn said

there is one country that may benefit from the U.S. rethinking of the supply chain. This country is Vietnam. In the first quarter of this year, Vietnam received many new investments related to finished vehicles and parts

the Vietnamese labor force is young and the wages are low. Compared with other Southeast Asian countries, Vietnam is more predictable and stable, which makes Vietnam a low-risk region. T=n/r........................................... Formula (11)

in addition, Mexico can also provide a competitive and skilled labor force

a senior trump administration official said at the press conference that the US government hopes to transfer more business activities to Mexico and Latin America rather than Asia. Moreover, this transformation has begun with the lag of industrial development strategy

"this is part of our larger adjustment... We plan to bring back the supply chain and readjust it from east to west to north to south."

"during the epidemic period, enterprises have witnessed the benefits of North-South supply. During this period, they have increased the frequency of contact with these countries and found that it is easier for them to cooperate with these countries than East-West supply." The above-mentioned senior officials believe that "in such a large-scale adjustment, Mexico will gain the best interests."

Larry keyler, head of the global automotive industry of RSM us, an accounting and consulting firm, believes that this means that Mexico can at least get the share of procurement from China in recent years. However, he predicted that auto companies would not withdraw from the labor market in Asia in large numbers

he explained that production transfer not only drives up costs, but also takes months or even years to achieve

"when considering the huge investment required to build OEM factories worldwide and the subsequent R & D, automation and robotics costs, you will find that the idea of 'I just want to transfer the supply chain from Asia to Mexico or the rest of the world' is too simple and not as fast as you think." Keller said

in fact, despite the erratic logistics situation in China, not all companies are keen to bear the cost of transferring the supply chain

Valeo is the tenth largest supplier in the automotive industry, with sales of US $18billion in 2019. At the Aix en Seine economic conference held in Paris, Jacques aschenbroich, CEO of the company, said that only when customers move can suppliers consider moving

"if we want to move the supply chain, our end customers and parts customers will have to pay for higher prices. Of course, they are not willing. Therefore, both may raise prices, so there is no need to choose to transfer the supply chain." Ashenbwa further explained

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