Recently, AlixPartners, a well-known domestic commercial bank and consulting company, respectively issued an investigation report on the status of the capital of Chinese parts and components companies. The two reports expressed concern about the cash flow of domestic parts and components companies.
According to an internal report released by a well-known commercial bank in China, although China became the world’s largest vehicle market in the first quarter of this year, nearly one-quarter of the domestic auto parts industry’s sales were overseas, and were uniformly purchased and exported by primary and secondary suppliers. The share is not small either.
The impact of the global automobile industry, which is spreading over the world, cannot be underestimated.
According to public information, in 2004, there were 22,000 auto parts manufacturers in China, including 5,600 above-scale enterprises. In 2007, the number of parts and components enterprises above designated size reached 7580. In 2007, the industry-wide sales revenue increased by 44% year-on-year. In 2008, the sales revenue of auto parts increased to 928 billion yuan, but the year-on-year increase was only half of that in 2007, among which the decline in exports was the main reason. In terms of US exports alone, there was a negative growth of 10% in parts sales in 2008.
If only the output value or sales are calculated, China’s spare parts exports are ranked behind the United States, Japan, and Germany at US$102 billion, of which there is only a gap of US$7 billion with Germany. However, if we examine profitability, the situation is much more serious. Despite experiencing a sharp decline in 2008, the profit rate of Chinese auto parts manufacturers in 2008 still reached 5.1%, which is higher than the average level of 3.2% for automakers. However, judging from the global market, the Japanese supplier's profit margin was the highest in the fourth quarter of last year, followed by Europe, while China and the United States had profit margins of -9% and -14%, respectively, and the entire vehicle in the fourth quarter - 8%. The profit rate is basically the same.
The 2009 China auto parts industry research and survey released recently by the consulting company AlixPartners shows that under the financial crisis, a considerable number of parts and components manufacturers are facing problems such as declining sales revenue, lower profit margins, and shrinking export markets; 4 manufacturers lack sufficient funds to survive the liquidity crisis; 20% of component suppliers have suffered a net loss in 2008; 50% of suppliers are expected to have a 2009 net profit rate of less than 5%. In the next 12 to 18 months, some parts manufacturers may go out of business unless they try their best to keep cash.
The survey also shows that in the past, China's spare parts companies had far better working capital than their international counterparts. However, in the face of the deteriorating external financing environment and the 2009 auto parts industry may be a year of shrinking profit margins and slowing growth, the loose credit and cash flow environment will not be able to reproduce. Therefore, in the face of new conditions, Chinese auto parts suppliers need to thoroughly improve their cash management capabilities to ensure sufficient liquidity.
The report pointed out that the cash flow in the spare parts industry is not smooth, but also reflected through inactive M & A transactions. The AlixPartners survey also showed that Chinese auto parts companies’ willingness to overseas acquisitions is rapidly declining. The proportion of companies currently considering overseas mergers and acquisitions has dropped from 50% in 2008 to 25%. As the turmoil in the global automotive industry has increased during this period, attractive listing assets have become more and more, and the willingness of companies to buy and sell has not risen or declined, indicating that the status of their funds is also deteriorating. It can be observed that the recent merger and acquisition cases of a series of domestic companies are basically driven by vehicle manufacturers rather than parts and components companies.
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