Tong Yang, Chery in Mainland China Plastic Body Parts Venture

Taiwan's Tong Yang Industrial Co.' the world's largest aftermarket auto-body parts firm' recently signed an agreement with SAIC Chery Automobile Co.' a leading independent automaker in mainland China' for the establishment of an auto-parts plant in Wuhu' Anhui Province.

The new venture' to be capitalized at US$12 million' will be Tong Yang's seventh plastic body-parts plant' and thirteenth facility overall (three of them established this year alone)' in China. It will further consolidate the Taiwan company's leading position in the supply of plastic body parts to independent Chinese auto manufacturers.

Tong Yang says that it will set up two or three more plastic-parts plants in northern China (Tianjin or Beijing) and central China (Wuhan or Nanjing) by the end of next year in order to complete its manufacturing deployment in the huge Chinese market.

The company's chairman' Michael Wu' flew to Anhui to sign the latest agreement with Chery chairman Yin Tong-yao. The Taiwan company has a 50% stake in the venture' through an affiliated overseas holding company' while Chery owns the other 50% through its subsidiary' Wuhu Chery Technology Co.

The new venture will modify an existing plastic-parts factory run by Chery' and will soon begin mass production with an annual capacity of 300'000 sets. It will supply all plastic auto-body parts to Chery' including bumpers' dashboards' and grills.

Tong Yang chairman Raymond Wu reports that Chery is a young and vigorous company that has risen rapidly in recent years' last year selling over 100'000 cars (making it the mainland's tenth-largest automaker) and expecting to hit 150'000 sales in 2004.


Shooting for the Top


Chairman Wu says that its penetration of Chery's parts-supply chain will help Tong Yang to become China's biggest maker of plastic auto parts. He also expects his company to win orders from China's top three auto-production conglomerates' Shanghai Automotive Industry Corp. (SAIC)' through its cross-investment with Chery' First Auto Work (FAW)' and Dongfeng.

Among Tong Yang's other mainland ventures is a joint investment with the Harbin Hafei Motor Co. in Heilongjiang Province' the sixth-largest automaker there.

In addition to completing its business deployment in China by the end of next year' president Wu comments' Tong Yang might follow a plant that Changan Ford is moving to Nanjing by setting up its second facility there to provide a direct supply of parts to Ford.

"Production and sales orders in China's huge auto market are now expected to be reshuffled earlier than originally thought'" Wu points out' "following the institution of the central government's policy of economic macro-adjustment. The new policy will affect the willingness and ability of consumers to buy."

The president claims that his company saw the coming of the change in economic policy several years ago' and since then has been choosing its partners in that huge but risky market carefully. So carefully' in fact' that all of them are among the 10 top automakers in China.

Both Chery and Hafei are among the top 10' and both are independent companies that have developed their own car models and engines without support from foreign technical partners. This mode of operation requires full capabilities in terms of development' design' mold and die tooling' and manufacturing; for parts manufacturers' it offers much more business opportunities.

Parts suppliers wanting to do business with such independent companies' Wu stresses' must have the capability needed to support the development of new models by the independents. If joint development projects are successful' however' they offer relatively high profit margins on the resulting parts.

Outside of China' Wu says' Tong Yang will focus on both the sale of aftermarket parts and on high-end' high-added-value joint-development projects together with foreign auto manufacturers. With the company's strong global competitiveness and network of overseas production bases' Wu is strongly confident that this double-barreled strategy will succeed. (Sept. 2004)