Parts companies are squeezed on both sides to seek autonomy
JIANGMEN PRO-TAYLOR REFRIGERATION CO., LTD. , https://www.protaylor.com
In recent years, host companies have been aggressively cutting prices, especially since 2006, making price reductions a common promotional tactic used by vehicle manufacturers. This downward spiral has not only affected the automakers themselves but has also spread rapidly through the supply chain. Under the pressure from original equipment manufacturers (OEMs), upstream component suppliers—such as bearings, gears, hydraulic parts, and standard components—have also experienced significant margin compression. These companies are feeling the pain of forced price cuts, often without any real bargaining power.
Despite reporting that they are in an unequal position with OEMs and lacking effective communication channels, many parts manufacturers continue to comply with the demands for lower prices. Faced with dual pressures—both the OEM’s price cuts and rising raw material costs—profit margins have shrunk significantly. However, most suppliers still choose to stay in the game, afraid of losing their qualifications or future market access. They dare not speak out openly, yet they must deliver. The fear of being replaced is too great.
Survival in this tight space is challenging. As one car bearing company manager put it, “The days for all parts manufacturers are really tough.†Previously, profits were substantial, but now, with automakers pushing prices down drastically, companies are forced to improve efficiency and invest in technology. “If foreigners can endure it, we can too,†he said. “After this round of price wars, some weak factories will be eliminated, and stronger ones will emerge.â€
Vehicle manufacturers lead the market by controlling access, branding, and technical standards. When they cut prices, suppliers are left with no choice but to follow suit. Otherwise, they risk being replaced by other suppliers. In the past, OEMs typically asked for small annual price reductions, but last year's aggressive price cuts shifted most of the burden onto suppliers. For example, the price of a certain brand of pistons dropped from 110 yuan to 90 yuan—a nearly 20% decrease.
Compounding the problem, raw material prices—like steel, oil, and coal—have surged recently. Hot-rolled steel plates now cost around 3,800 yuan per ton, while medium boards reach 4,100 yuan. Aluminum and other materials are also fluctuating, and transportation costs are rising. Power shortages may further drive up electricity prices. Meanwhile, there is little room for cost-cutting without compromising product quality. This creates a "hamburger effect," where both sides are squeezed between rising costs and falling prices.
Most Chinese parts companies are still dependent on OEMs and operate in a passive, service-oriented role. In contrast, foreign suppliers often have independent development capabilities and play a key role in new product development. Domestic companies usually sign multi-year framework agreements with OEMs, agreeing to annual price reductions of 3–5%. However, OEMs often renegotiate these terms each year, sometimes demanding steep cuts. This lack of contract compliance is common in the industry. Some companies even try to cut costs by compromising on quality, which risks long-term damage.
To survive and thrive, parts companies need to focus on independent development. Many lack R&D capabilities and intellectual property, relying instead on orders and short-term profits. Industry experts suggest that suppliers should evolve from simply manufacturing to developing products, building internal teams, and forming independent systems. A good example is Hunan Jiangbin Machinery Group, which introduced German piston technology in the 1980s and, after decades of innovation, now possesses world-class processing capabilities and enhanced competitiveness.
Globally, vehicle manufacturers and parts suppliers maintain an equal relationship. In China, however, the dynamic often resembles a "parent-child" structure. The success of the whole vehicle industry depends on strong, reliable parts suppliers. Price cuts shouldn’t come at the expense of their interests. Building long-term, strategic partnerships between OEMs and suppliers is essential for sustainable growth and mutual benefit.