Multinational auto giants dominate the profit distribution of parts and components plants with low profits

The wage gap between workers in auto OEMs and parts suppliers has triggered our thinking on profit distribution in the automotive industry chain.

Whoever masters the core technology will stand at the top of the value chain of the automotive industry. The top multinational corporations and international component giants in the profits of the industry chain hold the right to distribute profits while Chinese domestic component makers are still engaged in low-cost game strategies.

"Every year, auto OEMs and OEMs have a product price reduction agreement. This is the sharing of profits in the industry chain, such as the cost of spare parts materials and research and development, which reduces the vehicle manufacturers to also enjoy this profit distribution." Automotive Marketing Communications Expert Zhang Zhiyong expressed the interest negotiation in the automobile industry chain.

In fact, the negotiation of interests between automakers and parts and components companies is not as simple as Zhang Zhiyong said. “The automaker has earned a big head” from many domestic parts and components companies.

Industrial chain benefits sample

On May 31, 2010, Li Shusen (a pseudonym), a boss who has engaged in the production of automobile floor mats for many years, disclosed to reporters the unspoken rules of the Auto Parts industry chain.

Li Shusen told reporters: "The wholesale price of a car mat is 70 yuan. The retail price of the 4S shop rose to more than 200 yuan after the automobile factory turnover. The OEM factory arbitrage with the 4S shop 130 yuan. The mat manufacturer removes the manufacturing cost profit. At 10 yuan, the profits of OEMs and 4S stores are more than 10 times that of manufacturers." Li Shusen sighed, "Operating a company is relatively hard and finally earns a small head and barely maintains the operation of the factory."

Li Shusen's factory is a family factory. In the late 1990s, Li Shusen’s father began to engage in footpad production for more than a decade. Today, Li Shusen inherits his father’s career as the manager of the company.

Li Shusen's downstream parts factory is a French auto giant's joint venture in China for half a year since Li Shusen's sale of floor mats to auto OEMs has been reduced by 4 yuan.

“When the automaker reaches a quantity, they talk about a price and hope that the price will be reduced. They have already made a big profit. Now that the raw material price increases, the price of labor materials can't be reduced any more. We can hardly survive anymore.” Li Shusen sighed.

Since Li Shusen will continue to be the foundry of the OEM since the profit is low, Li Shusen explained that it is mainly the production demand. Footpad production cannot reach a certain scale of production costs and cannot be reduced. Another 30% of the company’s revenue for OEMs for OEMs is still very impressive.

At the same time as there is a dispute over the interests of the OEM, Li Shusen’s factory has to face competition with its peers. “The low entry of the foot mat industry requires a pair of scissors and a sewing machine to rely on manpower. The newly-introduced foot pad manufacturers are making the market’s civil war through price war, resulting in lower and lower prices for negotiations with automakers. Li Shusen said.

It is understood that the wholesale price of floor mats has dropped by 15% in the past 3 years and some products have been reduced by more than 50%. Of course, it contains the reasons for the reduction in production costs.

"5 years ago, the wholesale price of 3D pads was only RMB 40. Now, the manufacturers in Taiwan have not lowered their prices because their products have characteristics, they are of good quality, and improvements are faster. Continental products tend to be homogenous." According to Li Shusen Introduction.

Li Shusen said that the company is facing the pressure of product price increases. According to him, raw materials accounted for 70% of the company's operating costs; the monthly salary of more than 100 employees and 1,500 yuan plus senior management's total labor costs accounted for 10%. Both costs are now facing upward pressure. [next]

Who leads the profit distribution?

In fact, the distribution right in the automobile industry chain is related to the auto parts supply system of a country or a company.

In general, automakers hold the right to speak about the distribution of benefits.

Zhang Zhiyong thinks that the auto parts system in the world is divided into closed system and open system. The closed system is mainly Japanese and Korean auto companies open mainly to European, American and Chinese auto companies.

“Taking Toyota and Honda as examples, Toyota’s multi-participant upstream component companies are not holding but form a general interest. The profits on the industry chain are mostly shared without large-scale price cuts.” Zhang Zhiyong told reporters: “Japan and South Korea have relatively little crisis They feel that they are basically able to make money in the hands of their own hands, especially the engine and gearbox, etc. The basic business is internal supply. Generally, non-Japanese companies can hardly enter the supply chain."

Zhang Zhiyong thinks that such a supply model has a lot of profits but also risks. There are no substitutes for the parts system of Toyota and Honda, which makes the production system very fragile. It is difficult to deal with the crisis if it occurs. ”

European, American and Chinese auto parts are all open parts procurement systems. Take the Volkswagen as an example. Volkswagen has established a vast parts procurement system in China for 20 years. Many non-public series have entered the public supply system. The Chinese auto parts industry has grown rapidly along with the development of the masses.

In the open parts supply system, the upstream and downstream interests in the automotive industry chain are inconsistent. There are many bargaining mechanisms in the cooperation. The two parties will initially set a price cut in the next five years.

“The public has a very strong ability to control the auto parts system. They are familiar with the production costs of the parts and components companies and profit margins of the profitable parts and components companies are within the control of the public.” Zhang Zhiyong said that although the auto plant has the right to distribute profits, The profit of the depot is not the biggest auto parts giant with monopoly core technology. It is the biggest winner such as Bosch, Delphi and Denso components giants. After being monopolized by the core parts and components enterprises, it is the entire vehicle factory, the core component manufacturing enterprise, and the non-core component manufacturing enterprise.

Zhang Zhiyong pointed out that "this sort of arrangement is not absolutely related to the strength of the automaker. Some OEMs are not as profitable as some of the core components companies that make engines and gearboxes."

Short parts for auto parts

In recent years, major auto groups in China have invested a large amount of their own brands in the production of engines and gearboxes to build their own parts supply systems. On the surface, China's auto parts system is already perfect, but in fact it still lacks the technology on the most core components.

“Automotive components are now modularized. Each auto electronic plate must have a port so that parts and components can be matched with automotive electronic systems.” Yi Sheng, Deputy Director of Ipsos Automotive Research, told reporters “Upstream Auto Parts Enterprises It is necessary to show these automakers that the parts produced cannot be matched up with the entire body. From this point of view, Chinese auto parts companies must make concessions to multinational corporations at the expense of some interests."

Take the body control module (BCM system) as an example. Foreign companies have already controlled 90% of the market. It is understood that the suppliers of BCM systems in the Chinese market mainly include Hella, Siemens, Denso, Delphi, Zhangjiagang Suxing, Renesas Wei, WorldCom, Mitsubishi, Taimilk and Atek. Only Zhangjiagang Suxing is the Chinese parts and components company. 8% market share.

In fact, automotive electronics systems are far more than BCM systems and many automotive electronic systems such as ESP. Assistant Min Yong, assistant to the president of domestic parts and components manufacturing company Wan An Group Co., Ltd., told reporters that “China’s auto companies have not yet produced ESP technology to enter the vehicle company’s supporting facilities. It is necessary to first communicate with manufacturers with ESP technology. This means that you must Concessions on the benefits."

Min Yongyong cited the comparison of Chery and Guangben’s bicycle profits in 2005 as an example. Chery’s cycling profit was 500 yuan, and the profit of this bicycle reached 40,000 yuan. This profit gap also exists between multinational component giants and domestic parts and components companies. of.

Min Yongyong believes that the core technologies of Europe and America's parts and components system are not to allow Chinese companies to intervene. Therefore, China and multinational companies have only learned fur at the joint venture for many years and China's spare parts supply system is too open. "Foreign cars with advanced and monopolistic technology must have advantages in competition with their peers. We hope that the state will increase support for the national auto parts industry and issue policies to protect the national auto industry."

Ye Sheng also expressed concern to reporters that "China's auto rapid development for 20 years but we still do not grasp the distribution of core technology profits are in the hands of foreign giants." China's auto profit distribution in the industry chain is still in a passive position Chinese auto companies What role to play in the industry chain is worth pondering.

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