TTVMA Chairman K.R. Chen Paints Smooth Road for Taiwan's Auto Industry

Taiwan's automotive supplier

K.R. Chen, chairman of the Taiwan Transportation Vehicle Manufacturers' Association (TTVMA) and president of Taiwan's largest carmaker Yulon Group, sheds light on the future of Taiwan's automotive industry, predicting several possibilities for growth that are influenced by an obvious oversupply in the global industry.

A decision-making executive of two car assemblers-Yulon Motor and China Motor-as well as several reinvested auto-parts suppliers, Chen is also charged with mapping out goals for the TTVMA during his tenure as chairman, and is obliged to know well Taiwan's advantages in the auto industry, future market trends, and the probability of Taiwan-based carmakers to go global to counter low new car sales in Taiwan (around 250,000 units a year).

Chen, living up to his professional status, not only analyzed the local automotive industry, outlining future developments, at the Conference on Cross-strait Cooperation and Exchange in the Automobile (including Battery Energy Storage) Industry, held November 23-25, 2009, but also, taking the technical high road, advised Taiwan's automotive industry to focus on intelligent vehicles and green-power by tapping the world-class information technology (IT) and energy technology (ET) on the island.

Key Advantages

Taiwan's automotive suppliers, according to Chen, wield four major advantages.

First Taiwan's auto-parts suppliers have formed a well-established supply chain, one that is globally-renowned for good quality, innovation, functionality but delivered at competitive prices. In fact some makers in Taiwan supply high-quality parts to international automakers in the U.S., Japan, and Europe, with the island also being a key supply base of aftermarket (AM) auto-parts, especially collision-replacement items as headlamps, body parts, mirrors, radiators etc.

Second Taiwan's auto-parts makers are known for stable quality, prompt response, and willingness to take on small-volume, large-variety orders. Typically making large-volume items brings stable quality due to focusing on fewer products; but Taiwanese suppliers can do the same by using advanced equipment, despite filling small orders.

World Car

Forced by intensifying global competition, automakers are resorting to building "world cars" or more models but on fewer chassis, which cut cost, meet more consumer segments and expand market shares. The result is, however, relatively smaller sales volume for each model. Here lies an opportunity for Taiwanese auto-parts makers to leverage small-volume-but-big-variety expertise, as well as partnering with global automakers to sharpen competitiveness.

Perhaps diverting from reality, and excusable given Chen's obligation to tout Taiwan's automotive industry, the TTVMA chairman did not mention the island's years of experience in OEM car-making and assembly, instead promoted as the third advantage Taiwan's considerable capability in product-differentiation and development. Before China's rise as a global-leading car market, Taiwan was the largest car market in Greater China, with automakers in Taiwan hence being adept at vehicle styling and interior design to satisfy popular taste in the region. Such is the reason many foreign automakers have set up R&D centers in Taiwan to commission local partners to develop cars for Asia-Pacific sales.

Fourthly and as ICT players in Taiwan eagerly try to diversify product lines, the auto-parts sector on the island also stands to profit. For example High Tech Computer Corp. (HTC) has developed an infotainment system for Yulon's Luxgen, while other ICT companies are also working on auto-related projects.

Look for Niches

With the increasingly crowded and saturated global automotive industry, Chen said that Taiwan would be well advised to take the path less trodden-to deemphasize conventional products or business models but focus on finding niche markets.

Having developed core automotive technologies, Taiwan's automotive suppliers should tap such expertise to develop niche products for eco-protection, energy-saving/green power, comfort/convenience, and safety, said Chen, adding that such products should be built to suit green power and intelligent vehicles as hybrid cars, electric vehicles (EVs), mobile-office vehicles, vehicles for seniors, and driverless cars.

Further painting a long-term picture with idealistic tones, Chen said to the hundreds in the audience: "To meet global demands for eco-protection, energy-saving, carbon reduction, and electronic automotive systems, Taiwan's established IT and ET suppliers should partner to develop green and intelligent vehicles as core products."

Tapping IT

Taiwan's automotive industry has to leverage as core tactic the strengths of local IT suppliers, including differentiating specifications and services, Chen explained, which are achieved by local makers' efforts to build "driving safety and comfort/convenience items."

Listing a series of driving safety items that may be built by Taiwanese suppliers tapping the considerable IT R&D capability, Chen suggested LED headlamp, high-tech anti-theft system as fingerprint identification, motors and actuators, multimedia rearview mirrors as driving-information integration platform, intelligent side-mirrors that automatically adjust to steering wheel angles or shifting into reverse, anti-lock brake system (ABS) controller, tire pressure monitoring systems (TPMS) etc.

Other niche products feasible for Taiwan's automotive makers include driving comfort and convenience items as cruise control system, electric seating system, in-vehicle recorder, electronic instrument panel, head-up display, telematics systems etc.

Leveraging ET

Local auto-parts makers can also tap the ET line, said Chen, to build battery electric vehicle (BEV), hybrid electric vehicle (HEV), plug-in hybrid electric vehicle (PHEV) and key sub-systems, including power-control units, server motors, and battery modules that require high technologies and long-term development, to meet rising eco-awareness globally.

Cross-Strait Strategy

Apparently somewhat outdated with current market status, Chen said that Taiwan's automotive industry can achieve win-win scenario with the rapidly growing counterpart in China, which is expected to become the largest automobile market soon, without realizing that new car sales there are reportedly already globally-beating. Basically the TTVMA has mapped out five cooperative strategies to achieve mutual-benefit, said Chen.

Again not breaking new ground, Chen said that division-of-labor manufacturing can be adopted by makers in Taiwan and China to build different models. Specifically carmakers in Taiwan can tap their high-quality manufacturing capability to build small volumes of certain models for the massive Chinese market. The advantages of such cooperation is enabling foreign carmakers and technical partners in China to focus more on production of big-volume models to achieve better economy-of-scale; reduce tariffs once the Economic Cooperation Framework Agreement (ECFA) between Taiwan and China will have been signed, when small-volume foreign-branded cars can be assembled in Taiwan but shipped to China without paying duty; and upgrade foreign carmakers' logistic efficiency in the Asia-Pacific, in which makers can locate production of different products for improved logistic, manufacturing and cost efficiencies. More importantly but without citing real-world track record, the TTVMA chairman stressed that Taiwan can help many independent carmakers in China without foreign technical partnerships export vehicles backed by better made-in-Taiwan image and superior global marketing strategies.

Building EVs

Second, Taiwan and China can team more closely in the EV business. By tapping the integrated EV technical strength in Taiwan, Taiwan and China stand an excellent chance to become global leaders in EV development. Also working for Taiwan is the huge EV market in China that is strongly backed by official policies, which can efficiently help expand market and industry scales, as well as expedite achieving more affordable costs for new-energy vehicles, said Chen.

The third strategy, Chen said, for cross-strait automotive partnership is for Taiwan's automotive industry to help independent carmakers in China to effectively and rapidly differentiate brands.

Further continuing his promotion of the Taiwanese automotive industry, Chen said that the island's carmakers are globally famous for designing differentiated products, and hence can help independent Chinese automakers upgrade added-value and brand image. Likely getting too far ahead of himself and even Taiwan's car-making sector, Chen said that Taiwanese partners can mainly provide world-class information and communication technology (ICT) R&D capability, which can help build vehicles as not just basic transportation but cars with user-friendly equipment and safety features typically seen on only luxury models.

Resource Sharing

Becoming conceptual, Chen said that the fourth strategy for cross-strait cooperation is resource-sharing between auto-parts suppliers in Taiwan and China. Such model has been the migration of dozens of Taiwan-based auto-parts makers setting up factories in China, some of which supply high-quality parts to Chinese automakers. Also global automakers have set up in China factories to turn out first-tier branded parts to more effectively develop business there.

The fifth strategy calls for partnerships between auto-parts suppliers in Taiwan and China, which can achieve "one-and-one is bigger than two" effect, Chen said.

Backed by high quality and cost competitive capabilities, Chen explained, Taiwanese suppliers are major AM auto-parts makers globally, especially in the collision-parts business, and hence can help Chinese counterparts to scale the steep learning curve as they develop a new business.

Concluding with a heady outlook, Chen said: "Adopting all five strategies would link the automotive supply chains in Taiwan and China to create many lucrative opportunities, combining manufacturing resources to provide high-quality, cost-competitive products to international brands; create many high value-added, technically-independent, globally-competitive brands in Taiwan and China; construct one of the world's most advantageous auto-parts supply chains on either side of the Taiwan Strait, all of which can effectively help makers tap global first-tier supply chains, as well as build a lead technologically and market-wise in the EV industry and largest EV market in China."