After a long march, China is well on its way to becoming one of the world's auto parts manufacturing hubs.
But will China become the global hub?
"Yes, I think they can," says Alain Charlois, who recently returned from a two-year assignment in China as vice president of sales and business development for TRW Automotive Inc.
"China has big plans to become a big automaker and not just a hub for foreign companies," he says.
Auto parts exports from China to the United States grew from $510 million in 1995 to $4.8 billion in 2005, according to the U.S. International Trade Commission.
Stunning growth rates
Auto parts executives say China has proved to be an irresistible manufacturing site because of its powerful combination of low wages and huge market.
The massive influx of foreign investment there will ensure that Chinese manufacturing continues to enjoy stunning growth rates.
China's manufacturing capacity will prompt Chinese automakers to eye export markets in the United States, Europe and Third World nations, executives say.
Chinese automakers for now face difficulties, including strict safety and emissions standards. Then there is the cost of dealer networks.
Still, Changan Automobile Group, Ford Motor Co.'s Chinese production partner, will launch a small economy car in September that it wants to export to the United States eventually, a spokesman told Automotive News in June.
Other Chinese companies also want to sell cars in the United States.
Giant parts maker Magna International Inc. already has anticipated increased growth in China.
"The Chinese market will be the second-largest market by the end of the decade, so you've got to be there," says Magna President Mark Hogan.
Magnet for manufacturers
Industry executives such as Hogan are expanding their China operations.
Magna Steyr AG announced plans this year to build an engineering center and expand its headquarters there.
Magna Steyr, a unit of Magna International, assembles Chrysler, BMW and other vehicles.
China continues to be a magnet for manufacturers despite the nasty surprises that parts makers encounter.
There are issues of counterfeiting U.S. parts, theft of technology, rule changes that favor cutthroat pricing by the locals and higher-than-expected costs.
William Kozyra, CEO of Continental AG's Automotive Systems Division in North America, says companies have little choice but to take the plunge.
To remain globally competitive, we "have to produce in regions that are more globally competitive than others," he says.
Kozyra and Hogan made their comments at an Automotive News roundtable discussion on July 11.
Can't stay out
Years of pricing pressure by Big 3 customers have pushed auto parts executives into low-cost countries, and China is among the most attractive. Profits are the reason.
A survey of 450 U.S. companies last year by the American Chamber of Commerce for China found that
68 percent said they were profitable and that 70 percent said their China profits equaled or exceeded their global profits.
But at some point, China's allure will wane, says James Orchard, president of North American operations for French automotive seat maker Faurecia.
"China will emerge, they will get a slice of the pie, they will improve their life, but they will also eventually lose their edge in terms of competitiveness.
"I think it's life's evolution in our business."
Orchard also was a roundtable participant.
You may e-mail Robert Sherefkin at [email protected]