China's auto parts high profit situation invisible
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But even if the auto market continues to grow this year, component manufacturers have to face more variables and greater challenges.
In fact, since the beginning of 2010, the increase in raw material prices has caused concern among Chinese auto parts companies. “The long steel price has become a quarterly price, and the price of iron ore has increased by 80% so far!†said Luo Man, Managing Director of AlixPartners China.
Mr. Roman said that in the context of rising raw materials, Chinese auto parts manufacturers have been hit harder. "Because they are second- and third-tier suppliers, not first-tier manufacturers, this determines their limited pricing power."
What's more, if China's auto market slows down in 2010, the profitability of China's component manufacturers will decline, and their ability to pass risks will be weaker.
According to AlixPartners' survey report, the major challenges that Chinese auto parts manufacturers will face in 2010 are: “In addition to rising raw material prices, pressure from price reductions by OEMs and price competition among suppliers will increase. Difficulty for parts manufacturers to operate."
However, Chinese auto parts makers have already realized the problem. They will adjust the structure and change the growth model to deal with the adversity they will face.