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Tong Yang Eyes Bigger Role in Global Auto-Parts Market

Oct 04, 2013 | By Quincy Liang

If Crispin Wu is right, original equipment (OE) and aftermarket (AM) parts makers in Taiwan can expect growing demand from China, particularly as Japanese car brands expand their share of the huge market.

President of Tong Yang Industrial Co., Ltd., a leading OE and AM auto-parts manufacturing conglomerate, notes that over the past three years the Chinese automobile market has been downshifting from a period of breakneck expansion to a more sustainable pace of growth, making life easier for automakers. At the same time, the European and American automobile markets are recovering from a three-year cold, he says.

Optimism Toward OE & AM
"I'm optimistic that the auto-parts market will grow steadily after hitting a bottom," Wu says, citing a gradual recovery in Europe and an expected tapering of the quantitative easing (QE) program in the U.S. as reasons for more stable growth in those key markets. Wu expects the AM market to expand at a 10% annual pace in Europe and America, though another two to three years will be needed to return to the 15% average annual growth seen before. In addition, Wu expects AM auto-parts sales in China to grow at a 30% annual pace over next three years.

"China is the world's largest automobile production and sales nation and it will continue to push development of OE auto-parts sales," Wu continues. "In the first five months of this year, new-automobile production and sales in China reached 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 flared between China and Japan, the total market share of Japanese car brands in China fell to about 7.61%, but it recovered to about 16% in May of 2013. If China's economy grows at about 7% a year and new-car sales in the second- and third-tier cities continue to grow, new-car sales to that market should maintain the current growth trend over next three years."

Since the Tohoku earthquake and tsunami in 2011, Wu says, automaker Toyota of Japan has been trying to increase the number of common parts used on its vehicles to minimize the impact of supply chain disruptions and cut the cost and time of introducing new car models. "I believe other automakers will follow Toyota's lead and create more opportunities for foreign parts suppliers, especially bigger and stronger ones," Wu says. In fact, Wu predicted such development trend as early as in 2011.

Taiwanese auto-parts suppliers are internationally reputed for their global competitiveness, including quick market response, product quality and cost control, Wu says. Now they are in an even more advantageous position thanks to strong support from the China market. Any company that can gain a solid foothold in China and continue to develop has a very bright future, Wu says. He counts auto-parts suppliers Kian Shen Corp., Fine Blanking & Tool Co., Ltd. (FBT), Hiroca Holdings Ltd. and several rubber-tire makers among the major players that have aggressively deployed in China. Taiwanese parts makers supply almost all parts used in cars, apart from engines and transmission gearboxes, Wu observes, making the island one of the most competitive parts supply bases in the world.

Restructuring
In the past three years, Tong Yang has taken advantage of the unfavorable business climate restructure its operations, including weeding out non-competitive product categories, expanding production capacity, and developing new dies and molds to extend its lead over competitors.

"The profit margins on sheet-metal body parts have been seriously compressed due to fierce competition in the low technical-threshold market," Wu says

As part of its restructuring plan, Tong Yang merged affiliate Taiwan Kai Yih Industrial Co., Ltd., a leading AM sheet-metal parts supplier in the group, in 2010. Since then, it has been aggressively adding new plastic molds and metal dies, as well as expanding production capacity. By the end of 2012, Taiwan Kai Yih's annual revenue from sheet-metal parts outstripped the total of all counterparts on the island.

Since then, sheet-metal parts have been a money-maker for Tong Yang," with profit margins increasing to 27.1% in 2013, from 22.5% in 2011.

Orders from international automakers in the U.S., Japan, the U.K., Latin America and Southeast Asia helped Tong Yang's OE business to boost revenue by more than 50%. "We have no reason for pessimism this year," Wu claims. "We have been also aggressively preparing ourselves to win more OE orders from Chinese automakers."

Quoting statistics compiled by the Chinese government, Wu points out that as of the end of 2012, car ownership in China reached 120.9 million units (including 11.45 million three-wheel cars and low-speed commercial vehicles), a 14.3% increase from previous year. Sales of private-own passenger cars reached 53.1 million units, up 22.8%. Though the Chinese AM auto-parts market lacks solid production and marketing networks, Wu expects China to become the largest market for AM parts in the future.

"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," Wu points out. "This is especially true since car ownership in the nation has been rapidly increasing in recent years."

Rapid Growth in China
After 19 years of investment and development in China, Tong Yang has become the largest plastic auto-parts manufacturing conglomerate in China, with 17 factories, including three sites under-construction. All the 14 in-operation factories are profitable.

According to Wu, Tong Yang began investing in China in 1995 and worked hard to win Chinese automakers over with its technical capability. Now, almost all major automakers have been inviting Tong Yang to set up joint ventures to supply OE parts. In some new ventures, new orders account for 50% of the factories' total capacity, indicating the growth momentum of the Taiwanese auto-parts supplier in China now.

"Tong Yang will never stop restructuring," Wu says. "Currently in Taiwan, we are renovating the electroplating coating lines at our Guanyin factory (focusing on OE parts), expanding our automotive radiator factory in Tainan, and constructing new mold/die development facilities. All of these projects are expected to be completed in the third quarter. Our new mold/die facility is located in the best location of our plant campus in Tainan, underscoring our commitment to product development."

Tong Yang has even more ambitious plans to further hone its competitive edge. According to Wu, the company will continue to set up plastic-injection, electro-plating, and sheet-metal stamping product lines for AM parts, as well as renovate its instrument-panel factory. Over the next six years, he adds, Tong Yang plans to invest more than NT$13 billion (US$433.3 million), including about NT$3 billion (US$100 million) in 2013, to strengthen its position as a global player, with about half that amount going into mold/die development.

Tong Yang's annual production capacity in Taiwan (OE and AM) includes: 6.6 million plastic bumpers (a figure that will increase when its new AM bumper plastic-injection line is completed in 2014) and 4.2 million sheet-metal parts (increasing to an anticipated 4.8 million in 2014). In China, when the company's three new factories begin production in 2014, Tong Yang will have an annual capacity of at least 3.9 million plastic bumpers (meeting one-fifth of the demand from new cars produced in China). The group will continue to expand its product lines for further grow its business.

"The auto-parts market will never go away, though the demand goes up or down as economic conditions affect consumer willingness to replace their parts or make them reduce their driving time," Wu says. "If Tong Yang continues to develop more new products, as we have in all of the past years, we will be even-more competitive than our counterparts."

Tong Yang was established in 1952 and today is a major international auto-parts enterprise with 23 global production bases and 7,145 employees.


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,

Daimler, 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

2007

Hubei , China

43,000 sqm (10.8 Acres)

Dongfeng Nissan,

Dongfeng Honda,

Zhengzhou Nissan

Changsha GAIG Tong Yang

2011

Hunan , China

44,568 sqm

GAIG-Fiat

Xiangyang Tong Yang

--

Hubei , China

--

Dongfeng Nissan, Chengzhou Nissan, GAIA-Mitsubishi

Foshan Tong Yang

--

Guangdong , China

--

FAW-VW, Dongfeng Nissan

Source: Tong Yang.


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