China auto service market starts booming
HONG KONG: China’s auto market has gone into overdrive in the last three years as millions of Chinese bought their first cars. Now, the market for replacement parts and service centres is racing to catch up.
John Hung, chairman and founder of New Focus Auto Tech Holdings, a small Shanghai-based chain of auto parts and repair shops, hopes to improve his shot at a market that has doubled in size over the past five years and is now growing at about 8 percent a year.
“As more people own their own car, it is natural that they will need maintenance service,” Hung said during an interview ahead of his firm’s Hong Kong initial public offering this month.
New Focus competes with several overseas giants keen for a piece of China’s burgeoning automotive aftermarket sector, including GM’s AC Delco arm and Germany’s Robert Bosch GmbH. Domestically, he faces roughly 250,000 mostly tiny operators.
China’s vehicle market is the world’s third-largest behind the United States and Japan, but the after-market segment is in its relative infancy.
In the United States and Europe, after-market sales account for roughly 70 percent of the auto industry. In China, it accounted for one-third of the total industry in 2002, according to figures in the company’s prospectus.
China’s automotive after-market sales totalled roughly $23.7 billion in 2004, according to Access Asia forecasts cited in the listing document. The sector has been growing at 8 percent a year and is on track to reach $31 billion in 2007.
“This is a very promising market,” said Hung, a Taiwan native who started the company he runs with his sister in 1994 as a manufacturer and exporter of auto parts.
IPO tune up: New Focus, which manufactures parts and operates retail outlets, hopes to raise up to HK$94 million (US$12 million) in a Hong Kong IPO to expand production capacity and open new stores.
It operates 39 retail outlets in the Shanghai area, mostly under its Autolife brand. The company runs four franchises for the U.S.-based AC Delco chain, the parts and accessories brand of General Motors Corp. New Focus plans to expand its network to 120 by the end of this year, mainly by selling franchises.
About 2.3 million sedans were sold in China last year, after the market nearly doubled in 2003 to 2 million units thanks to furious economic growth. The government has since moved to tighten credit, weighing on sales growth.
The lack of development in the after-sales segment has created a fragmented market of mom-and-pop operations across the country, which foreign manufacturers say are selling fake spare parts that retail at a fraction of the price of the real thing.
The race is on: Among foreign parts and repair firms eyeing China, AC Delco plans to establish over 200 chain stores in eastern China, while Bosch intends to expand its number of stores from 300 to 1,000 over the next five years. —Reuters
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