As Price Competition Prolongs in China... Auto Parts Suppliers Face 'Mass Bankruptcies'

Payment Delays Due to Cost-Cutting Demands
Parts Suppliers and Subcontractors 'Struggling'

As price competition in China's automobile industry prolongs, bankruptcies among parts suppliers continue. The industry’s habitual demand for cost reductions and delayed payments have compounded financial crises.

On the 29th, China’s First Financial Daily reported that numerous Chinese auto parts companies have recently shut down or are facing difficulties. This trend affects not only small parts companies but also top-tier industry players.

[Image source=AFP Yonhap News]

According to First Financial Daily, the production plant of Hongxiang Auto Parts Co., Ltd., located in Fengxian District, Shanghai, currently has all its lines idle, with only office desks and trash remaining. The company had been reducing its workforce due to continuous losses this year but ultimately could not sustain operations and closed down. Consequently, parts suppliers subcontracted by Hongxiang have also been struggling.

One parts supplier, facing prolonged losses, plans to halt operations next month and restructure its workforce from about 300 employees to around 200. Among the parts suppliers outsourcing processing for Hongxiang, more than ten have closed their doors.

The background to this situation is attributed to excessive price competition within the industry. An industry insider told First Financial Daily, "The current market continues to engage in cutthroat competition, and to break into new business channels, prices must be lowered. Whereas price reduction targets were previously set annually, they are now demanded quarterly."

Another executive from a major parts company stated, "This year, buyers want about a 20% price reduction, which is very difficult to negotiate considering parts suppliers’ typical profit margins are only around 12 percentage points." First Financial Daily added, "Except for a few top-tier companies with superior technology, most parts suppliers meet these demands at a loss to maintain their business relationships."

In addition to cost reductions, delayed payments are also pressuring suppliers. An industry source said, "In the past, customers paid every three months, but now payment terms have extended to nine months." According to First Financial Daily’s verification with multiple companies, recent payment periods from ordering companies range from six months to a year.

Some express concerns about quality degradation due to excessive price competition. A sales executive from a smart automotive antenna supplier said, "As the saying goes, 'You get what you pay for.' This approach lowers industry standards. While squeezing costs might save 10-15% compared to competitors, cutting prices by more than 50% means the products cannot be considered normal." He added, "For example, parts previously attached with adhesives are being replaced with two buckles, and connectors from large factories are being swapped for low-cost domestic alternatives."

This content was produced with the assistance of AI translation services.