Delphi gears up for the long haul in Chinese market

Delphi Automotive Plc is looking to make further inroads in China, notwithstanding the recent cooling of the automobile market, and expects robust demand for its products to drive growth.

The US auto parts company said its China unit, Delphi Automotive Systems (China) Holding, has been able to weather the market turbulence, and its efforts to reduce costs and improve overall efficiency have more than paid off in China.

In April, Delphi said its first-quarter revenue had grown after a 12 percent year-on-year pickup in Asia sales during the period. The company reported global revenue of $4.1 billion for the first quarter, up 2.4 percent year-on-year, and an 18 percent growth in profit to $342 million.

Buoyed by the encouraging trends, Delphi is now looking to further consolidate its presence. On June 26, the company signed an agreement with a company in Chengdu, Sichuan province, for diesel fuel injection systems. Since 1993, Delphi has invested $500 million in China.

It has also formed partnerships with more than 10 Chinese companies, and most of its top managers in China were locally recruited. The company has more than 28,000 employees in China at its 18 units. It has 172 factories spread across 41 countries and regions, and 34 global technology centers.

"In 2011, Delphi's global revenue was $16 billion, and the Asia-Pacific region's share of this was $2.4 billion. China accounted for 80 percent of the Asia-Pacific revenue," said Majdi Abulaban, president of Delphi Asia-Pacific and Delphi China.

Jiang Jian, vice-president of Delphi Asia-Pacific who is also responsible for corporate affairs and marketing, said that Delphi has been able to weather the slowdown in the Chinese automobile market as most of its major clients are global automobile brands like General Motors, Volkswagen and Toyota. Jiang said that most of these foreign brands have posted record sales numbers in China.

Last year, foreign auto brands boosted their market share in China to 57.77 percent, up 3.37 percentage points from 2010, according to data provided by the China Association of Automobile Manufacturers. With most of the foreign auto brands looking to further expand their capacities in China, Delphi seems to be on a strong perch, as demand for auto spare parts is slated to increase exponentially.

Like Delphi, the Canadian auto parts supplier Magna International Inc has also drawn up plans to boost production in China. The company began work on a power train factory in Tianjin in October. In December, German auto parts major Continental AG expanded the capacity of its factory in Anhui province, to make sensors and parts used in auto oil supply systems. In February, Bosch broke ground for a new chassis control system factory in Sichuan province.

"Though most of the growth is being driven by global auto brands, we are also seeing increased demand from Chinese auto brands," Jiang said.

"Demand is being driven by the Chinese auto brands that are looking to move up the value chain with high-end models. An important part of this strategy is to use foreign brand spare parts for the high-end models."

Abulaban estimates that most of Delphi's future revenue in the Asia-Pacific region will come from China, at least in the next five years. Although India will replace Japan as the second-largest market in the region over the next five years, the company is still betting big on China, as most of the Indian orders are spare parts for low-end vehicles, he said.

"We hope that in the next five years, the Asia-Pacific region will account for one-third of our global revenue," Abulaban said.

To achieve its goal in China, Delphi plans to further strengthen its localization efforts. Delphi sources nearly 85 percent of its raw materials from China, and since 2003, has also set up two research and development centers, manned by 700 engineers, to study the needs of China-based original equipment manufacturers.

When Delphi was spun off from General Motors Co in 1999, it initially depended on the US automaker for a large chunk of its business. But after cultivating new clients for more than 10 years, the company has reduced the proportion orders from GM from 80 percent in the early 2000 to less than 15 percent now.

"I don't expect the growth rate to be always this high in the future, since the market is not yet fully fledged," Jiang said. "Once the Chinese market matures, the growth rates will stabilize and remain at a medium level."

As far as Chinese auto parts are concerned, Delphi feels that it will take some time for the domestic parts makers to catch up with global players.

According to the China Auto Parts and Accessories Corp, overseas parts makers have a 70 percent to 80 percent share of the Chinese automobile market. Chinese spare parts companies have barely managed to reach the 10 billion yuan ($1.58 billion) mark, a benchmark to judge competitiveness in the global market.

"In recent years, the Chinese government has paid more attention to Chinese spare parts makers, but it is already 10 years late," said Su Hong, vice-president of Changan US Center, a research and development center in Detroit set up by Chinese automaker Changan Automobile Group Co. Su has worked for Chinese and foreign auto companies for more than 20 years.

"In a sense, spare parts are more important than OEM, because it is the engine, power train and gear box that decide the functionality of the vehicle."

Besides providing products to its long-term foreign clients, Delphi is also looking to tap into the rising Chinese OEMs.

"Foreign auto brands' requirements are very specific, and they ask for particular parts. Since Chinese OEMs are less experienced, we have more room to showcase our expertise," Jiang said.

A recent technology that Delphi has developed for the Chinese market is the "active safety" system, which has been used on the Hongqi, a high-end homegrown auto brand owned by FAW.

"Drivers and passengers mostly depend on vehicle features such as air bags and safety belts for protection. But they work only in the case of accidents. The new Delphi system is able to detect the speed of the car in front and will automatically reduce the vehicle speed," Jiang said.

"We designed this product specifically for the Chinese market as we found that drivers in China often tend to change speed while driving."

Although Chinese auto parts companies are now making aggressive moves in the global market, Delphi is unperturbed.

"It takes time to establish a brand in this highly competitive field," Jiang said. "For example, Delphi spent decades developing and improving the Delphi engine management system, and we conducted countless experiments and tests to collect data and scenarios. That requires big money which many Chinese companies cannot afford."

wangchao@chinadaily.com.cn