China's auto parts market still faces enormous pressure and risks next year

Wuhan, Xinhua — December 19th (Reporter Yang Xingguo) In 2006, China’s auto parts market is expected to face continued challenges such as rising resource costs, persistent price reductions in the market, and increased demands for intellectual property protection. These predictions were made by Weng Yunzhong, Executive Deputy General Manager of Dongfeng Motor Co., Ltd.’s Parts Business Department, at the recent 2006 business conference. According to recent data, from January to October this year, sales of commercial vehicles in China dropped by 1.23% compared to the same period last year. Intense competition has significantly reduced profit margins across the automotive industry, with the average profit rate for vehicle manufacturers falling to around 5%. With rising resource prices and ongoing price cuts, auto parts companies are struggling even more, with industry experts estimating that overall profits have declined by over 80%, making it one of the most difficult periods for the sector in recent years. Despite these challenges, Dongfeng Commercial Vehicles maintained a leading position in domestic sales. As a result, the Dongfeng Parts Business Unit saw a 34.2% increase in revenue from passenger vehicle products and a 77.7% rise in export revenue during the same period. While the overall industry remains under pressure, Dongfeng’s performance has been relatively better. Weng Yunzhong attributed this success to five key areas: improving quality, cost, and delivery (QCD), strengthening customer relationships, accelerating new product development, optimizing organizational structure, and promoting international cooperation. Through these efforts, the company has managed to stay ahead of its competitors. Looking ahead, Weng emphasized that the auto parts industry will continue to face significant pressures in 2006, including high costs, sustained price declines, intellectual property challenges, and difficulties in account settlements. He warned that Chinese auto parts companies cannot rely on resource price cuts or market recovery; instead, they must proactively strengthen internal management and prepare for long-term risks. In 2006, the Dongfeng Parts Business Unit aims to achieve an overall turnaround and strives to reach 50 million yuan in pre-tax profit. To support this goal, the company is shifting its business model to be more market-driven, focusing on technology and innovation. Key strategies include deepening partnerships with major customers, optimizing internal resources, reducing costs through QCD improvements, enhancing service systems, increasing R&D investment, and establishing effective controls across all subsidiaries. These measures are designed to ensure sustainable growth, improve competitiveness, and maintain strong collaboration with both domestic and international partners. By taking proactive steps, Dongfeng aims to not only survive but thrive in an increasingly challenging environment.

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