COMMENT: Delphi: expected boost from Chinese market

By Datamonitor Commentwire | 10 November 2003

After posting a negative result for the third quarter of 2003, Delphi is hoping that its Chinese operations will help to turn things around. Since 2000, the company has struggled to diversify its customer base and become less reliant on business from former parent company General Motors. China is a key element to restart the company's engine over the next few years.

Delphi, one of the world's largest automotive parts suppliers, expects its sales in China to reach about $US1 billion this year. Delphi entered China in 1993 and currently has 15 joint ventures supplying products to the country's major automobile manufacturers. The company achieved sales of $700 million in China during 2002.

The strong interest in China is due to the country being one of the fastest growing automotive markets in the world. It is expected that this booming market will continue to grow for years; therefore parts manufacturers are building capacity to take market share. Delphi plans to increase factory shifts and introduce new technology to ensure it keeps pace with demand for its batteries, brakes and suspension systems. By the end of 2002, Delphi had invested $400 million in China.

The auto parts market has exploded because the domestic demand for vehicles has doubled in the last few years. General Motors, Ford, Toyota and Volkswagen are among the auto companies in China announcing major expansion.

This rapid growth of China's auto industry has turned the country into a target for auto parts manufacturers that may be struggling in home markets. Tenneco Automotive has just announced its plans to enter the Chinese market, predicting the company's revenue in China to grow between 25% and 30% annually over the next three years. By 2006, the Chinese market is expected to contribute around 8% of Tenneco's revenues.

Other auto parts manufacturers will also make the move into China as sales of auto parts continue to grow. Stiffer competition from foreign companies on the basis of technology and quality will drive some inefficient local parts manufacturers out of the market. Delphi's focus on technology will give the company strength to gain market share in China at the expense of other players.

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