A Glimpse at the European Auto Parts Aftermarket

On July 25, the Great Wall Motor Company made automotive history by being certified by the British Vehicle Certification Agency (BVCA) for the Wingle Pickup, marking the first instance of a Chinese automaker to export a pickup to Europe.

The certification by the BVCA not only opens a new market for the Wingle Pickup, currently shipped to nearly 70 countries, but also sets an example for other Chinese automakers to explore the European market, which traditionally imposes much stricter vehicular safety standards.

A Dutch transportation vehicle expert predicts that China's auto exports to Europe may grow drastically in the following 10 years, to even surpass South Korea. The expert's bold prediction is based on European consumers' tendency to choose more affordable vehicles during economic downturns. Coincidentally, the European auto market faces a shakeup due to soaring production costs, opening opportunities for automakers wielding cost advantages from developing areas to penetrate the continent.

The two major French makes-Renault and Citroen, for example, have been speeding the pace to move production offshore to escape the problems of rising labor cost and appreciating euro at home, where the socialist government traditionally levies relatively high taxes to support the enviable social welfare for citizens.

Auto Parts Market

For most car and auto parts exporters, Europe has been traditionally a closed market due to demanding much tougher requirements; only in recent years has the EU moved to gradually open its market. One significant action in this regard is the announcement of the Block Exemption Regulation (BER) in 2003, which considerably eased requirements governing auto parts for the after-sale market (AM).

In Europe, the AM auto parts market has been traditionally dominated by suppliers run as satellite factories of certain automakers, leaving a slim market share to be tapped by independent parts suppliers, who, for example, accounted for a 2% sliver of the British AM market before, but would have seen expanding market share since the BER announcement in 2003.

The BER, which took effect on October 1, 2003, lowers the restriction on source of auto parts to be sold for car maintenance, or the AM market, to allow consumers to choose parts based on preference after expiry of vehicle warranty. Such auto parts are mostly required to be E/e-Mark certified to ensure product safety. On the one hand the BER has opened wider the European AM market, but on the other the market has become even more competitive-for a bigger entry attracts more auto parts suppliers everywhere to vie for a slice of the market, which is valued at an estimated US$12 billion every year, only trailing the US$14.7 billion in the U.S.

Staggering Car Market

Like other car markets worldwide, the European one has been battered during the first half of this year due to spiraling fuel prices, the global credit crunch, rising commodity prices etc., and the hardship may continue throughout the whole of 2009. The global economic downturn, coupled with soaring gas prices, are putting the brakes on global willingness to buy new cars. Statistics show that worldwide auto sales may drop to 14.29 million units in 2008, down 510,000 vehicles or 5-6% from the previous year, and may further drop to 14 million vehicles or so in 2009.

Europe Bucks Trend

While most automakers suffer setbacks during the recent economic downturn, the European AM market in contrast has been growing faster in recent years mainly due to market liberalization since 2003, as well as the recent appreciation of the euro.

Tong Yang Group, a Taiwan-headquartered auto parts manufacturer with production lines in China, has seen substantial growth in European sales and expects an annual growth of 15% in that market this year.

"Another factor driving the growth in the European AM market is compromised willingness to buy new cars amid high gas prices," says Tong Yang Chairman Y.M. Wu. "When people either lose interest to buy new cars or would rather wait for more fuel-efficient models, they naturally keep cars longer, which call for regular maintenance that generate demand for auto parts," Wu observes.

Tong Yang is a major global supplier of AM auto parts, with over 100 moulds to produce a variety of auto parts, which are, according to the group, generally classified into three categories: collision parts that are replaced after accidents; replacements parts needed as cars age; and tuning or performance parts to enhance a car's form and function.

Certification Systems

Both the European and American AM markets require certifications for auto parts to ensure safety, with such certification systems differing from each other. The Americans allow private companies to develop their own certification systems, while the Europeans set up independent agencies to test and issue certificates. Each European country has its own certification institute such as the IDIADA in Spain, TUV in Germany, TNO in the Netherlands, UTAC in France, CPA in Italy etc., with everybody following the same requirements and standards.

But only two certification institutions govern the European AM-the Thatcham in Britain and the Centrol Zaragoza in Spain, with the former being more popular and thus playing an active role in testing auto parts to be shipped to the European market.

The Thatcham, a non-profit institution established in 1969 by the Association of British Insurers and Lloyd's Motor Underwriters, has new operations in Thailand to better serve Chinese and other Asian manufacturers who aim to export to the European market.