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Tong Yang President Crispin Wu Comments On Auto-Parts Business

Veteran maker sees many opportunities in China for OE and AM parts suppliers

2013/10/04 | By Quincy Liang

Crispin Wu, president of Tong Yang.
Crispin Wu, president of Tong Yang.
Crispin Wu, president of Tong Yang Industrial Co., Ltd., a leading auto-parts manufacturing conglomerate engaged in both original equipment (OE) and aftermarket (AM) parts production and sales globally, recently said the Chinese market will present many lucrative opportunities to both OE and AM parts suppliers, whose opportunities will rise further by increasingly higher market shares of Japanese car brands in China.

Established in 1952, Tong Yang has grown into an internationalized auto-parts enterprise with 23 global production bases and 7,145 employees.

Over the past three years, Wu explains, the Chinese automobile market has been restructured and reshuffled towards normality, from rapid growth to more reasonable, slower development. That suggests the worst of rapid market-restructuring for all players has gone, he says, while the European and American automobile markets are also recovering from the cold winter about three years ago.

Tong Yang supplies wide ranging auto-parts.
Tong Yang supplies wide ranging auto-parts.
Optimism About Toward OE & AM
“I'm optimistic about the slowly recovering auto-parts market in the post-nadir period, and I see the overall market from two angles,” Wu says. First of all, Wu continues, the gradually recovering economy in Europe, and the scheduled withdraw of quantitative easing (QE) in the U.S. are showing signs for more stable growths in key markets. The bottom of the global AM auto-parts market has passed, with about 10% growth in European and American AM market expected, albeit needing about two to three years to see average 15% annual growth like before. In addition, AM auto-parts sales in China are expected to grow about 30% yearly over next three years, according to Wu.

China, the world's largest automobile production and sales nation, will continue to push the development of OE auto-parts sales. In the first five months this year, new-automobile production and sales volumes in China were 9.07 million and 9.02 million units, respectively, up 13.5%, and 12.6% from the same period of last year. During the period, passenger-car production and sales increased 15.2% and 14.7% year-on-year (YoY), respectively. In addition, in October 2012, when the territorial disputes over the Senkaku Islands between China and Japan occurred, total market share of Japanese car brands in China was about 7.61% but has recovered to about 16% in May 2013. If China maintains annual economic growth of about 7%, coupled with increasing new-car sales in the second- and third-class cities, new-car sales in the world's largest market are expected to continue growing over the next three years, says Wu.

Bird’s eye view of Tong Yang’s plant in Tainan, southern Taiwan.
Bird’s eye view of Tong Yang’s plant in Tainan, southern Taiwan.
Since the massive earthquake and tsunami in 2011, Wu says, Toyota of Japan has been trying to increase the number of shared parts used to minimize impact from supply chain breakage as well as cut cost and time for launching new models. “I believe other automakers will follow Toyota's move, which should create more opportunities for overseas parts suppliers especially for better sales,” says Wu, who actually foresaw such development in 2011.

Taiwanese auto-parts suppliers, who strive to survive in the tiny domestic market, are internationally reputed for global competitiveness, including quick response, product quality, cost control etc., and are now better poised with strong support from the big market in China. Any company with a solid foothold in China and steady growth can have very bright future. For example, auto-parts suppliers Kian Shen Corp., Fine Blanking & Tool Co., Ltd. (FBT), Hiroca Holdings Ltd., and several tire makers have become major players after setting up operations in China. Except automotive engines and transmission gearboxes, Taiwanese parts makers supply almost all other parts to make the island a very competitive supply base globally.

Restructuring
In the past three years, Tong Yang utilized the unfavorable business climate to restructure, including weeding out non-competitive product categories, expanding production capacity, development of new dies and molds etc. to widen its gap from counterparts.

The profit margins of sheet-metal body parts have been seriously compromised in the past due to fierce competitions in the emerging markets, but Tong Yang has in the doldrums of the past three years to strategically restructure. In 2010, Tong Yang merged affiliate Taiwan Kai Yih Industrial Co., Ltd., a leading AM sheet-metal parts supplier in the group, to begin adding new plastic molds and metal dies, as well as expand production capacity. By the end of 2012, Taiwan Kai Yih's annual revenue of sheet-metal parts has outstripped the total of all counterparts on the island. After which sheet-metal parts are no longer thin-margin items but money-makers for Tong Yang, according to Wu.

After the restructuring, profit margin of Tong Yang's sheet-metal parts has been upgraded to 27.1% in 2013, from 22.5% in 2011.

Thanks to the increasing outsourcing orders from international automakers in especially the U.S., Japan, the U.K., Latin America and Southeast Asia, Tong Yang's OE business revenue has outstripped 50%. “We have no reason for pessimism this year, because we have been aggressively preparing to win more OE orders from Chinese automakers,” says Wu.

Quoting statistics compiled by the Chinese government, Wu points out that as of the end of 2012, China's car ownership has reached 120.9 million units (including 11.45 million three-wheel cars and low-speed commercial vehicles), a 14.3% increase from previous year. Among them, private passenger cars were 53.1 million units, up 22.8%. Despite the Chinese AM auto-parts market having not built a sound production and sales order, China will inevitably be the largest market for AM parts in the future, says Wu.

The AM replacement parts market in China is gradually developing toward an insurance-based system like that in Europe and the U.S., which will benefit Tong Yang's business development in the big market, especially that car ownership volume in the nation has been rapidly increasing in recent years, says Wu.

Rapid Growth in China
After 19 years of investment and business deployment in China, Tong Yang has grown into the largest plastic auto-parts manufacturing conglomerate in China with 17 factories, including three under-construction, with all the 14 in-operation being profitable.

According to Wu, Tong Yang began moving to China in 1995 and strived to attract Chinese automakers' attention with its technical capability, with almost all major automakers having been inviting Tong Yang to set up joint ventures to supply OE parts. Some new ventures have already booked orders to fill 50% of the factories' total capacity, showing the Taiwanese auto-parts supplier's strength in China.

Tong Yang will not stop restructuring. “In Taiwan we are renovating electro-plating lines at the Guanyin factory (OE parts), expanding automotive radiator factory in Tainan, and constructing new mold/die development facilities. All these projects are expected to be completed in the third quarter. Our new mold/die facility is perfectly located in our plant campus in Tainan to show devotion to new-product development,” says Wu.

Tong Yang has even more ambitious plans to leave behind counterparts. According to Wu, his company will continue to set up plastic-injection, electro-plating, and sheet-metal stamping lines for AM parts, as well as renovate instrument-panel factory. In these six years, Tong Yang plans to invest more than NT$13 billion (US$433.3 million), including about NT$3 billion (US$100 million) in 2013, with half for mold/die development to further strengthen itself into a global player.

Tong Yang's annual production capacity in Taiwan (OE and AM) includes: 6.6 million plastic bumpers, with a new AM bumper plastic-injection line to be added in 2014, and 4.2 million sheet-metal parts, whose volume will be elevated to 4.8 million in 2014. In China, when the three factories kick off production in 2014, Tong Yang will have annual capacity of at least 3.9 million plastic bumpers (enough for one-fifth of new cars produced in China).

“If Tong Yang continues to develop more new products as done in the past, we will be even more competitive than counterparts,” Wu concludes.

Tong Yang's Major Chinese Subsidiaries & Customers
Company Name Established Location Area Measures Major Customers
Chongqing Dajiang Yuchyang 1994 Sichuan, China 55,441 sqm
(13.9 Acres)
Changan Suzuki,
Changan Motor,
Changduo Toyota
Chongqing Dajiang Tong Yang 2004 Sichuan, China 68,000 sqm
(17.0 Acres)
Chang Ford
Fuzhou Tong Yang 1995 Fujian, China 53,444 sqm
(13.4 Acres)
Southeast Motor,
Dailmler, Aelous Motor
Chang Chun Faway
Tong Yang--Changchung
2003 Jilin, China 88,466 sqm (22.1Acres) First Auto Group
Chang Chun Faway
Tong Yang--Foshan
-- Guangdong, China -- First Auto Group
Wuhan Xiang Xing 2007Hubei, China 43,000 sqm
(10.8 Acres)
Dongfeng Nissan,
Dongfeng Honda,
Zhengzhou Nissan
Changsha GAIG Tong Yang2011Hunan, China44,568 sqmGAIG-Fiat
Xiangyang
Tong Yang
--Hubei, China--Dongfeng Nissan, Chengzhou Nissan,
GAIA-Mitsubishi
Foshan Tong Yang--Guangdong, China--FAW-VW,
Dongfeng Nissan
Source: Tong Yang.