Taiwan's Auto-parts Exports Grow Steadily But Face Challenges

Real opportunities in merging markets lie in auto electronics and new-energy vehicles

In recent years, car sales in emerging markets, especially in Southeast Asia, Eastern Europe and Latin America, have outpaced that in industrially advanced counterparts, with international carmakers rapidly adopting regional division-of-labor schemes to adapt to such changes. So it is very clear that the global automotive industry is undergoing accelerating change, in which global suppliers are reshaping the development of global auto-parts segment, according to the Industrial Economics & Knowledge Center (IEK) under domestic Industrial Technology Research Institute.

The impacts on Taiwan's auto-parts exports are heavier than those on assembled vehicles, due to various free trade agreements (FTAs) signed between regions and nations, which often cut or eliminate duties on mutually traded products. With Taiwan's domestic car market being very small and the island's absence in most international trade agreements focusing on exports etc., the island's auto-parts industry faces several severe challenges: low-priced cars being increasingly popular in emerging markets, increasingly complex auto parts and sub-systems, and new demand from new-energy vehicles etc.

These new challenges, according to industry experts, require the auto-parts industry in Taiwan to review its current status and adjust rapidly and efficiently for long-term development, as well as build strategic, global division-of-labor schemes on the island to maintain global competitiveness while more efficiently explore the global market.

Due to small domestic market, most auto-parts makers in Taiwan are small- to medium-sized enterprises (SMEs) focusing on exporting aftermarket (AM) products. Willing to fill small-batch, large-variety orders, Taiwan's suppliers can meet global demands, with ever more AM auto-parts makers achieving competitive advantages after building wide product lines. An increasing number of parts suppliers have set up product warehouses or factories overseas for direct shipments to local markets, or set up technical partnerships and joint ventures to tap the original equipment (OE) parts supply chains of international automakers. While others have been expanding global sales via Internet marketing or frequently participating in auto-parts shows in targeted markets.

Generally international auto-parts buyers recognize Taiwanese suppliers for their comprehensive, highly efficient subcontractor networks, or central-satellite plant systems, that enable individual parts manufacturers to specialize in certain lines and achieve high production flexibility, broad product range, low production costs, and fast development time.

Taiwan's auto-parts segment has seen steady export growths, with the only exception in 2009 due to the global recession, which led to an 8.5% decrease from the previous year.

Local Taiwan Transportation Vehicle Manufacturers' Association (TTVMA)'s data show that Taiwan's auto parts exports totaled NT$184.8 billion (US$6.16 billion) in 2011, up 7.9% from the previous year, for a record high in history. In the first nine months of 2012 exports hit NT$147.5 billion (US$4.9 billion), a 9.3% increase from the same period of 2011.

Status Quo
Taiwan's auto-parts industry kicked off in about 1953, when the local Yulon Group started to assemble cars. The small local car market, however, motivated the birth of local auto-parts makers to focus on small-batch, large-variety production mode, also consistently upgrading product quality for export. Initially, most local auto-parts makers relied on Japanese technical partners, especially Japanese automakers and tier-ones, for core technologies.

There are currently about 2,800 makers of auto parts and accessories in Taiwan, including approximately 300 OE suppliers, many of whom also produce AM products. In recent years, ever more international automakers have been increasing parts-outsourcing, especially those in Europe, Japan and the U.S., to cut costs amid fierce competition, which, according to IEK, create opportunities for local players, both OE and AM suppliers.

Major Exports
Among the NT$184.8 billion (US$6.16 billion) parts exports from Taiwan in 2011, some NT$60 billion (US$2 billion) went to the U.S., for a 35.7% share, compared to NT$12.7 billion (US$423.3 million) to Japan (6.9%). The top-two export markets were followed by China, Germany, Australia, Canada, Italy, and the U.K., all absorbing over-2% of Taiwan's parts exports in the year.

Taiwan's suppliers export ample AM collision replacement parts as side mirror, window regulator, sun visor, sheet-metal body parts, electrical parts, transmission gearbox, wheels (wheels and tires) etc.

Internationally renowned AM suppliers on the island include Tong Yang Industrial Co., Ltd. (the world's largest maker of AM plastic body-parts), Depo Auto Parts Ind. Co., Ltd. (leading auto-lamp supplier), TYC Brothers Industrial Co., Ltd. (auto lamps).

Bumpers
Some NT$8.4 billion (US$280.7 million) of bumpers and related accessories were exported by Taiwan in 2011, up 13.6% from previous year, according to IEK statistics, and the value was expected to continue increasing by 12.2% to NT$9.45 billion (US$315 million) in 2012. The top-five export markets for Taiwan-made bumpers (the U.S., Canada, Italy, Mexico, and Russia) together made up 73.3% of the total exports in 2011, including the largest market, the U.S., which purchased about NT$5.1 billion (US$170 million), or 60.6%, of such exports.

Auto Lamps (Head & Tail)
As auto lamps undergo advancement, these products are becoming more sophisticated with different lighting sources (HID, LED etc.) and mechanisms (such as the AFS, or Adaptive Front-lighting System).

According to IEK, Taiwan exported NT$15.71 billion (US$523.7 million) worth of auto lamps in 2011, up 11.1% from previous year, and the value was estimated to grow 9.7% in 2012 to hit NT$17.2 billion (US$574.3 million). Taiwan exported most of its auto lamps to the top-five markets of the U.S., Japan, Germany, the Netherlands, and UAE, which together accounted for 56.6% of the island's auto-lamp exports.

Transmission Gearbox, Electrical Parts
In 2011, Taiwan's export value of automotive automatic transmissions was NT$213 million (US$7.1 million), not a very high figure but the growth since 2009 has been clearly increasing due to some local makers having tapped into global automakers and tier-ones' supply chains. In 2012, the export value was expected to grow 15.2% to reach NT$245 million (US$8.2 million). Major export markets for Taiwan-made automatic transmission gearboxes include China, Thailand, Malaysia and Germany.

Taiwan exported about NT$210 million (US$7 million) of auto electrical parts, mainly ignition plugs, starter motors, ignition distributors, coils, lamp bases etc. in 2011.

Major overseas markets include China, Japan, Thailand and South Korea.

Opportunities for Taiwan
New-car sales in emerging markets, especially the "BRIC" economies, including Brazil, Russia, India and China, saw ups and downs in 2011, IEK says, but the real chances for Taiwanese makers in emerging markets are automotive electronics and new-energy vehicles.

Taiwanese auto-parts makers, IEK explains, who can get strong backing from world-class information and communication technology (ICT) industry on the island, coupled with experiences in the global parts market, can also expect to further expand shares in the automotive electronics market.

Other opportunities lie in new-energy vehicles, especially e-vehicles, which are a focal point in local government's economic development policies. Various local automotive-related research institutes as the Taiwan Automotive Research Consortium (TARC), including the Automotive Research and Testing Center (ARTC), the Mechanical and System Research Laboratories (MSL) of Industrial Technology Research Institute (ITRI), the Material and Chemical Research Laboratories (MCL) of ITRI, the Chung-Shan Institute of Science and Technology (CSIST), and Hua-chuang Automobile Information Technical Center Co. Ltd. (HAITEC), as well as many private makers, have been exploring such opportunities.

Proper Strategies
Currently, IEK analyzes, the global auto-pars industry requires makers to adopt different strategies for better survival, including strategic alliances, mergers or acquisitions, joint development in key technologies, multi-brand marketing, and finding niche markets. The center urges local players to upgrade their role into strategic partnerships with international companies and focus more on development and production of key parts, to further upgrade product quality and strengthen own design and development capability. All these efforts, IEK stresses, are expected to help local auto-parts makers move upmarket and raise product values.

In recent years, the knowledge center adds, vehicles are developed with intelligence, creating strong demand for higher-end electro-mechanical integration, cameras, sensors, and imaging systems, hence becoming more than mere transport but offering more comfort, safety and in-cabin entertainment and information.

IEK urges local players to better leverage the prowess of local ICT and semiconductor industries, and try aggressively to become tier-2 suppliers by first gaining solid footholds in the global aftermarket, then focus on the OE business.