Taiwan Eyes More Original Equipment Auto-Parts Orders from U.S.

A Taiwan auto-parts delegation organized by the Taiwan External Trade Development Council (TAITRA) and including representatives from 30 local auto-parts makers called on a number of American automakers and tier-one parts suppliers recently, and reportedly returned to Taiwan with the promise of large orders to come.

TAITRA secretary general Chao Yung-chuan says that the major automakers and parts suppliers in the United States are eager to boost their outsourcing from Asian suppliers. After a series of one-on-one meetings at the Royal Park Hotel in Rochester, Michigan, the representatives of the local auto-parts makers look forward to US$100 million in potential future orders.

James Hsu, president of the Safety Control Cable Ind. Co. (SCC), Taiwan's top maker of control cables for powered two-wheelers (PTWs), believes that this will be a key year for Taiwanese auto-parts manufacturers to enter the supply chains of major American auto companies. This will mark a major achievement that has long been beyond the reach of local suppliers.

Hsu reports that he himself contacted representatives of all of the Big Three and had long discussions with representatives from Johnson Control, a leading North American automotive control-cable maker.

The president says that GM has long been interested in ties with SCC, and has sent personnel to visit the company three times. Also, Hsu claims, SCC has been winning an increasing amount of orders from abroad and expects its revenue to reach about NT$600 million (US$19.17 million) this year, up 50% from 2004.

Hsu also claims that many American automakers and parts suppliers have switched their procurement to Taiwan because of quality and, especially, safety concerns about products from China. He notes, however, that most parts suppliers in Taiwan are small or medium in size and that their scale of production is too limited to take big-volume orders from America.

Local companies that receive large original equipment (OE) or original equipment manufacturer (OEM) orders from American customers, Hsu comments, face the dilemma of whether or not to put a lot of money into plant expansion; and if they do, they face the chance of an immediate operating crisis if the orders are taken away in the future.

Looking to Cut Costs

S.J. Chou, president of Pro Fortune, a leading Taiwanese maker of plastic auto body parts and deputy leader of the Taiwan auto-parts delegation, says that all American automakers and tier-one parts suppliers are looking for new ways to cut costs, and are seeking contract suppliers in Asia.

Chou reports that his own company garnered at least NT$500 million to NT$600 million (US$16-19.2 million) worth of potential sales during the American trip.

In view of the success of the most recent mission, Chao comments, TAITRA will organize a similar activity next year to promote the sale of Taiwan's high-quality auto parts in the international market.

One industry observer stresses that if Taiwanese companies want to win more OE and OEM auto-parts orders, they have to maintain their quality advantage over mainland Chinese suppliers and their price advantage over Japanese manufacturers.

America's Big Three car companies used to buy the vast majority of their parts in the U.S. because of quality and after-sales-service concerns. Now, however, tier-one parts manufacturers in the U.S. are suffering-many of them, including world-leading Delphi and Visteon, were in the red last year-and they, along with the automakers themselves, are turning to Asia for competitively priced parts.

Taiwan's advantage over mainland China in the auto parts business, the industry observer explains, is due to the fact that Chinese suppliers have not yet acquired the necessary concepts of quality control, business morals, and after-sales services. The island's advantage over Japan lies in the latter's high-cost, though admittedly high-quality, parts.

Manufacturers in Taiwan, the observer says, have been aggressively upgrading the quality of their products by introducing top-end production equipment, management concepts, materials, and technologies from the advanced countries, as a result of which their quality now parallels that of the U.S. and Japan. At the same time, their labor costs are only about a third of those in the U.S., and their materials costs are 10% to 15% lower because of Taiwan's domestic production of steel and petrochemicals. The final result is auto parts that cost 25% to 40% less than those made in the U.S.