Taiwan Auto-Parts Makers to Continue Leveraging Advantages for 2011

While record wintry temps have been set in northeastern China, with recent snow storms disrupting air traffic in Europe and the eastern USA, sales of new cars worldwide have been hot, according to different institutions and research firms' estimates, totaling some 70 million vehicles in 2010. China, the world's largest car market, will post record sales exceeding 17 million vehicles when all the numbers are tallied.

Many industry experts are cautiously optimistic about the development of the global automotive industry, partly driven by encouraging news such as GM's recent profitability. Observers can hardly be blamed for looking behind their shoulders for the auto sector globally skidded after the financial fallout in late 2008, with downstream suppliers also broadsided by the downturn.

Another key issue related to the global auto industry, without doubt, is the renewed concern of quality and safety of cars and parts, especially after Toyota's recalls involving unintended acceleration.

New Hope
The 2011 global automotive industry seems to have started more favorably, with drivers willing to buy new cars or replace parts than during the recession. Such view is backed by several major indicators.

New-car sales in major markets such as China, the U.S., Japan, and Europe are rebounding after the chilliest winter in many years, with global shipments of new cars to continue growing to reach pre-recession levels soon.

The outlook seems bright for global auto-parts suppliers still in the game, regardless of OE or AM parts companies. With several world-leading tier-one parts suppliers having filed for bankruptcy during the past two or three years, survivors have better opportunities to gain bigger shares of the rapidly recovering market. The new global OE parts supply landscape is making room for interested players that are competitive in quality and cost, including many qualified suppliers in Taiwan.

Global demand for AM auto parts was only minimally affected by the financial fallout for leaner times encouraged drivers to defer car replacements, hence fueling demand for parts to keep older cars running. Such trend continues for drivers are more willing to buy maintenance parts amid the improving economy. This economy-motivated demand kept most of Taiwan's AM auto-parts suppliers afloat during the recession, even driving some to expand capacity. The Tong Yang Group, for example, has announced aggressive capacity expansions at different production bases worldwide.

When sales of new cars worldwide increase, automakers will always launch new products, even ones on the back-burner, to explore the market and expand product lineup to create more business opportunities. A steadily improving economy also means more business opportunities for AM and performance-tuning auto parts makers, including many major players in Taiwan who are adept at filling small-batch, large-variety orders and rapid new-product development.

Optimistic Signs
A clear indicator shown in late 2010 that should point to strong growth for the global auto-parts industry was the record exhibitor and visitor numbers at the 2010 Automechanika Frankfurt, the world's largest AM auto-parts fair held in September in Frankfurt. The over-4,500 exhibitors at the biggest-ever fair explicitly said that companies worldwide are more optimistic and are investing to promote products, reflecting recovering global demand.

Another indicator was the heavy foot traffic to the CENS booth, where staff was flooded by visitors asking for Taiwanese supplier information, with such eagerness seen from the first day to the last minute of the event.

Global buyers are looking for parts with higher cost/performance (C/P) ratios, say industry experts, while in the past, during headier days, buyers bought practically anything and did so quickly for they could turn products into profits easily.

But now, a veteran industry analyst in Taiwan says, global buyers and consumers are much more price- and quality-sensitive after the global financial storm. The harsher economy has taught them to learn the difference between cheap products from low-end makers and reasonably-priced, quality items from Taiwan. Product familiarity has helped to divert more orders from emerging nations back to Taiwan.

Many signs point to improved opportunities for Taiwan's auto-parts makers, who already supply a major share of the world's high-quality, reasonably priced AM auto parts.

China Market
Almost all major first-tier auto-parts suppliers have set up production bases in China to directly serve the world's largest automobile market. The same goes for Taiwan's parts makers, backed by the advantage of sharing the same culture and language, proximity , and quality/price competitiveness, who are supplying many items to automakers in China on an OE or OES (service) basis.

Global warming turns out to be a blessing in disguise for AM parts suppliers. Extreme weather conditions such as flooding, frigid winters, snow storms, cause car accidents that tend to raise demand for auto parts—especially collision replacement parts.

The worldwide increase in new-car sales is also pumping up business for a growing group of OE auto-parts suppliers in Taiwan. For the island's auto parts makers, the silver lining in the global economic meltdown was redoubled efforts by automakers to cut costs, a trend on which Taiwan's low-cost, high-quality suppliers are well poised to capitalize.

Only about 20% of auto parts made in Taiwan are destined for OE markets, but that percentage has been growing in recent years as producers improve quality and keep prices competitive, which has endeared them to cost-cutting automakers and tier-one parts suppliers in Europe, the U.S., and China.

Amid even economic abyss, Taiwan's OE parts makers can profit from being able to fill small-batch, large-variety orders, winning orders from foreign automakers for relatively small-volume production that lacks economic scale.

More Opportunities
Tapping into supply chains of automakers and tier-one parts suppliers is an uphill battle for automakers and major parts suppliers are often joined at the hip. But in the past few years increasing numbers of prominent first-tier parts suppliers have gone under, offering more opportunities to Taiwanese companies that can compete in both quality and price and opening a new door for them to expand beyond the saturated domestic market.

Parts suppliers in Taiwan are also boosting exports of OE parts, especially to the overseas plants of Japanese automakers in the Association of Southeast Asian Nations (ASEAN) area and China. The tier-ones that now outsource production to Taiwan or cooperate with local partners to cut cost include big-names such as Visteon, Dana, Delphi, and Magna.

After a period of joint product development and mutual adaptation, Taiwan's parts makers are shipping increasing amounts of parts to carmakers and tier-one customers worldwide. Ones seeing sales gains from such business include the TYC Brothers Industrial Co., Fine Blanking & Tool Co. (FBT), Hota Industrial Manufacturing Co., Chian Hsing Forging Industrial Co., Macauto Industrial Co., Tung Thih Enterprise Co. (TTE), and China Metal Products Co.

Green Power
The emerging electric vehicle (EV) trend worldwide will also drive the auto parts sector. Many companies in Taiwan have been able to secure key positions by supplying lithium-ion battery packs, electric motors, and key parts of power control units to international EV makers.

Taiwan-made parts are seen on many high-profile battery electric vehicles (BEV), including the BMW Mini-E, Tesla Roadster, and top-end Fisker sports car, and will be adopted by an increasing number of models from other automakers that want to tap the inevitable green trend.

Besides the enthusiastic efforts by private companies in Taiwan over the past few years, Taiwan's government is also promoting the rapid development of EV-related industries on the island through various R&D-subsidy programs. The government has also commissioned domestic research institutions to help develop newer and better technologies for transfer to the private sector, aiming to make Taiwan not only a good market for EVs, with a well-established recharging infrastructure, but also an important supply base for key EV systems and parts, helping to build a new sector of auto parts.

Some of Taiwan's carmakers have introduced their own BEVs, and some are planning to promote other types of EVs such as plug-in hybrid electric vehicles (PHEVs) and hybrid electric vehicles (HEVs).

Automotive Electronics

Backed by Taiwan's world-class electronics and information and communication technology (ICT) industries, Taiwan auto parts producers are also innovating automotive-electronic systems and components, offering such items globally at reasonable prices. An increasing number of advanced automotive-electronic systems have been developed by local makers, who are eyeing not only Taiwan's carmakers but also the huge market in China.

The Hua-chuang Automobile Information Technical Center Co. (HAITEC), a subsidiary of Yulon, Taiwan's largest automaker, is playing a leading role in the development of the local automotive electronics sector. With support from the government and domestic research institutions, HAITEC has developed several car models packed with advanced electronic systems; while Yulon has installed these electronic systems in the group's LUXGEN own-brand models.

Taiwan companies have made significant headway in both the OE and AM segments of the auto-electronics market over the past year, supplying practical items as tire pressure monitoring systems (TPMS), telematics on-board units (OBUs), charge-coupled device (CCD)/complementary metal-oxide semiconductor (CMOS) cameras, thin film transistor-liquid crystal displays (TFT-LCDs), engine control units (ECUs), AC/DC converters, light-emitting diode (LED) lamps, portable navigation devices (PNDs), and night-vision systems.

Advantages

Auto parts suppliers in Taiwan will continue to leverage their long-established advantages in 2011, including a highly efficient central-satellite plant system that enables individual suppliers to specialize in certain fields, high production flexibility, broad product range, low production cost, and fast development time.

Taiwan's auto parts makers adopt effective division-of-labor manufacturing in Taiwan, China, and other countries, enabling suppliers to meet wide-ranging needs in terms of price, quality, quantity, and lead times.

Also auto parts makers in Taiwan specialize in small-batch, large-variety production that achieve high efficiency, flexibility, improved management, and cost control.