How Will The Parts Manufacturers Respond To The Cost Reduction Of OEMs?

- Mar 18, 2019-

2019-03-18 09:18:46

In 2018, the Chinese auto market suffered a "cold winter" that was rare for more than 20 years, and the days of car companies were extremely difficult. According to the sales data of passenger cars of more than 70 car companies released by the Association in 2018, only 35% of the car sales last year achieved positive growth year-on-year, and most of the other performances were not as good as the same period in 2017. The same is true for the financial report. Among the more than 10 years of auto companies that released the 2018 annual performance forecast earlier, the net profit of the super 60% has double-digit decline... It can be described as a cold winter.

Therefore, as early as the second half of 2018, many auto companies have formulated open source and throttling plans, or lay off employees to shut down factories, or put forward higher “year-low” requirements for supporting enterprises to reduce operating costs, re-optimize resource allocation, and respond to electrification and intelligence. Change. In this context, component suppliers, as close partners of car companies, are also a community of interests, and the situation is getting harder.

Then, under the double challenge of the decline in performance caused by the overall poor environment and the operational pressures transmitted from the car companies, how will the major component companies deal with the immediate difficulties? How will the relationship between them and the OEMs evolve? In response to these problems, we recently conducted an exclusive interview with a number of well-known parts and components companies with the theme of “C Talk Struggle 2019”.

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According to Ma Falong, president of Valeo China, enterprises are in the process of electrification, autonomous driving and new mobile travel. In order to successfully transform, they must invest a lot of money and seek sufficient investment and resources, but it is not easy to do so. Therefore, a key point for car companies and component suppliers is that they must have common interests. Only then can the two sides maintain a good cooperative relationship and better cope with change.

“More specific is to let OEMs and component suppliers cooperate to develop a project to maintain the consistency of interests between the two parties.” Because in the process of project cooperation, suppliers will actively introduce new technologies to reduce costs. It will not only leave a profit space for itself, but also match the goal of car companies to cut costs. It is called "win-win".

It is reported that Valeo has relatively close cooperation with SAIC, Geely, Great Wall, Changan and other local car companies. In addition, for some new car-building forces, Valeo has also contacted them. "Through these cooperations, we found that traditional OEMs generally tell the suppliers the requirements of the already designed products, and the new forces of the car also want us to implement some special requirements that reflect their uniqueness."

It is also gratifying that Ma Faron pointed out that the current trading relationship between OEMs and Tier 1 and Tier 3 suppliers is becoming more open and global, and the industry is actively introducing new production and management. Ways to increase internal productivity, which makes it possible for consumers to buy more feature-rich vehicles within an affordable price range.

For Hella, according to Jan Hellmich, general manager of Hella (Shanghai) Management Co., Ltd., in the face of current fluctuations in the auto market, Hella will continue to follow the global strategy towards electrical and electrification, interconnection and digitization, automation, and individuality. In order to ensure the innovation and development of the company, Hella has reserved sufficient research and development funds for products such as autonomous driving, radar, laser radar, camera sensors and so on.

As for the "reduction of capital" demand of car companies, Jan Hellmich believes that there is a certain price pressure in the daily business of the company is actually normal, the key is how to deal with it. “Hella’s solution is to continuously increase the productivity of localization of products. For example, we have built the world’s largest electronics factory in Shanghai. In addition, the automation of our factory is getting higher and higher... these are to some extent It has reduced the cost of our employment, and at the same time, the production efficiency has been greatly improved." Invisible, it has played a very good role in improving quality and efficiency.

With the deepening of the localization strategy, Jan Hellmich revealed that the current cooperation between Hella and local companies has accounted for a large proportion of the company's overall business. “Based on these cooperations, it is obvious that local car companies are more concerned with the application of innovative technologies than before, and have advanced products. At the same time, their demand changes are accelerating, which forces us to continue learning. And adapt to make a quick response."

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In comparison, Brose’s approach to car companies’ “years down” is slightly different. “In terms of cost, we will do more targeted costing. For example, what kind of price strategy is more competitive in this market? What is the reasonable profit margin? What costs do we have to control... not through cost plus expectations Profit to make a quote." Xiang Jie, president of Brose China, said.

“In addition, when we are doing product development, we will communicate with customers and suppliers very early, and control costs in advance. Because the future market competition is not a boxing match, but a tug-of-war, how much resources, capabilities and how big is behind it. The team is the key to success or failure. This is China's cultural characteristics. Therefore, as a company, we must play a good cooperative ability and use the resources of our partners. This is also the core competitiveness."

However, as Mr. Tang Defu, President of Faurecia China, said, no matter what method is adopted, optimizing the cost and ensuring the profit has always been a problem for the automotive industry. The automobile industry is also a cyclical industry, and there will always be ups and downs. "So from the company's point of view, we are completely accustomed to the car's 'year drop' mode, and are accustomed to how to deal with it. In our view, only to achieve break-even can ensure profit is not damaged, from this point In general, lowering the profit rate to lower the price is not an effective solution. In comparison, companies should do more to redesign, re-develop products, and review the production process of the products, and find ways to reduce costs. "The implication is that we return to the R&D, design and production of products, and use technology to reduce costs and improve the overall competitiveness of enterprises.

It is precisely this kind of "Buddha" mentality, and the face of the car companies "pressure" is not flustered, despite the overall performance of the car market in 2018, Faurecia's performance is particularly bright. According to official data, in 2018, Faurecia's sales and profits both rose, up 7% and 10% respectively. The consolidated sales revenue of China was 24.07 billion yuan, a year-on-year increase of 10.7%.

For the 2019 performance forecast, Faurecia predicts that based on the current unstable market environment, global automobile production in 2019 may fall by 1% compared with 2018. The situation in the first half of 2019 is severe and will gradually pick up in the second half of the year. Based on this assumption, Faurecia's FY 2019 sales growth (at constant exchange rates) is expected to continue to exceed global auto production growth, with an increase of approximately 150 benchmarks and an operating margin of at least 7%.