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A Report on the Development Trend of China's Auto-parts Industry (V)

Gasgoo.com Auto Industry Institute From Gasgoo.com| May 28 , 2008

Part V:The auto aftermarket is losing its appeal and competition on this battlefield is likely to heat up.

The profit margins of car sales have become thinner and thinner in recent years, both in the Chinese market and the global markets. With the growth of the nation’s auto ownership, especially the rising ownership of private cars, the auto aftermarket is drawing more attention.

China will have an average of 10 million new cars in each of the coming few years, and in five years the ownership of cars in China will reach 100 million units. The current ownership of cars in the United States is 200 million units and the demands for auto parts each year are valued at about $120 billion. If the car ownership in China hits 100 million units, the aftermarket value for auto parts will top 300 billion yuan ($43 billion) and the appeal of this market will become remarkably stronger.

The market appeal will bring more fierce competition, which will manifest itself on two levels: the competition between different kinds of suppliers and the competition between the industry sectors.

The competition between different kinds of suppliers:

1) The original suppliers of auto parts will provide the original equipment services (OES) to carmakers, and sell them to the aftermarket through the 4S stores. These suppliers will also likely try to enter the aftermarket as independent own brands and sell the OE or non-OE auto parts.

2) Global manufacturers focusing on the aftermarket will also boost their efforts to enter the Chinese aftermarket as newcomers.

3) As a result, two powerful kinds of competitors are likely to enter the independent aftermarket as well apart from the 4S store system. They are situated between the OES suppliers and suppliers of substitutes for low-quality auto-parts, a situation which means that market competition between the high-end and low-end auto-parts will be getting very fierce. This competition will greatly affect the local auto-parts makers oriented to this market, especially those suppliers for the passenger vehicles.

The competition between the industry sectors:

The aftermarket has two flow channels: the OES channel controlled by carmakers and the independent flow channel in society. And the independent channels include the chain stores for wholesales and retail services, and the pyramidal sales outlets, such as retail store and repair shops. Real chain sales have not emerged in China yet, but the trend of competition will exist here:

1) The contest between the OES channel and the independent channel will escalate. The popular sedan brands have more powerful OES channels than their independent channels. With the expansion of the market, the chain sales sector will spread nationwide to challenge the OES channels. For example, Bosch will build 1,000 auto repair centers in China by 2010, and Japan's biggest motor accessories supplier Yellow Hat plans to increase its dealerships in China to 500 by 2015. 3M offers up to 8,000 auto after-sales products in China, with 700 auto beauty shops across the country to serve more than 6,000 auto repair centers and 4S centers. Michelin, Goodyear, BP, Shell, Honeywell and many other foreign companies have set up their after-sales service networks, which also penetrate into each other.

2) The possible vying between the conventional mode of the independent channels in society and the new chain sales mode. In the coming three to five years, the conventional mode will not be much affected, but meanwhile it's also very difficult for it to make great progress, because anyway the more professionalized chain sales is an inexorable leading trend.

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