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"Sorry, I have to take this call now," said Zhou Liangfen, manager of Zhejiang Ruian Auto Parts Co., Ltd., as he abruptly cut off the conversation with a reporter, his face showing signs of impatience. This scene took place at the Gasgoo.com Purchase Matching Meeting on December 11th, where over 500 domestic auto parts companies gathered around 76 buyers in an attempt to secure any possible business in the current sluggish automotive market.
The staff were shouting, "Don’t crowd, everyone should be orderly and go in one by one." Despite the efforts to manage the flow, many people still waited anxiously outside the negotiation area. The prolonged decline in auto sales for six consecutive months has severely impacted upstream auto parts suppliers. Factories have shut down or reduced production, leading to massive layoffs, with many companies cutting their workforce by more than half. Some even face the risk of closure.
The outlook is still bleak. The U.S. Senate recently rejected the rescue plans for General Motors, Ford, and Chrysler, while China's auto market is expected to continue shrinking in 2009. With both global and domestic markets contracting, over 10,000 auto parts companies in China are struggling through what feels like a harsh winter.
"Orders have been cut in half," said Hu Zhizhi, chairman of Shanghai Dayou Plastic Mold Co., Ltd. Established in 2004, the company once enjoyed peak sales of about 50 million yuan. However, due to industry adjustments, its expansion plans were halted. Similarly, a car seat company in Shanghai recently reduced its workforce from over 400 to just 100 employees.
With vehicle manufacturers halting or reducing production, demand for spare parts has dropped significantly. As a result, auto parts companies are laying off workers and lowering production schedules to cut costs and stay afloat. Industry analysts noted that the utilization rate of spare parts companies is now only between 10% and 20%.
According to data from the National Bureau of Statistics in 2006, there were more than 10,000 auto parts companies in China. During the rapid growth of the auto market in 2007, many individuals and entities entered the industry, particularly in low-value-added sectors like stamping, lighting, and casting. These small-scale companies, especially those in Zhejiang, have been hit hardest.
"If you invest hundreds of thousands of dollars, you can set up a plastic part factory or a processing plant," said a technical manager from a Zhejiang-based company. Many investors rushed into low-end manufacturing, supplying second- and third-tier buyers. These firms are suffering the most in this crisis.
Chen Wenkai, president of Gasgoo.com, estimates that 5% of auto parts companies may be acquired or forced to close. At the Frankfurt Auto Parts Exhibition in Shanghai, which saw an attendance level exceeding 80% of last year’s, companies are scrambling to find new partners. A wire harness manufacturer in Shanghai admitted that attending such events feels like "looking for a needle in a haystack," but it's still worth trying.
China’s auto parts companies suffer from several internal issues: few customers, single-product focus, lack of diversification, and weak strategic and marketing capabilities. According to the National Bureau of Statistics, over 70% of domestic auto parts companies had annual outputs below 100 million yuan, with many operating on very thin margins.
Many Chinese companies have focused on low prices rather than long-term value, believing that low-cost production is the key. However, this approach leaves them vulnerable when the market turns. As Chen Wenkai pointed out, long-term stability and technological advancement are more crucial than short-term price competition.
Buyers from India, Germany, and the U.S. emphasized that they look beyond price—evaluating suppliers based on inventory management, technical capabilities, and financial health. Companies that lack long-term development potential often get excluded from procurement lists.
"Chinese auto parts products can compete globally, but the companies themselves cannot become global," Chen Wenkai said, highlighting the gap between Chinese and Western business philosophies.
Looking ahead, the situation may worsen. Major automakers like Toyota and Hyundai are cutting global production, and European and American companies are also reducing output. This will lead to fewer buyers coming to China, further squeezing local parts suppliers.
While some large companies are expanding through acquisitions, smaller ones are struggling. The future looks uncertain, but there are opportunities. Overseas markets, particularly in Europe and the U.S., are looking for cost-effective components. Companies that can adapt and improve their strategies may find new ways to grow.
In summary, the Chinese auto parts industry is facing a tough period, but with innovation, better management, and a shift toward quality and long-term planning, there is still hope for recovery.
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