Important issues in automotive parts enterprise acquisition

The automotive parts industry serves as an important complement to automotive original equipment manufacturers (OEMs). With China experiencing a large annual growth of vehicle sales in recent years, sales in the automotive parts industry have also grown impressively. Joint venture (JV) automobile enterprises dominate in China, and the majority of the corresponding automotive parts enterprises are also wholly foreign-owned enterprises or JVs. With the rise in domestic automotive brands, a number of excellent wholly Chinese-owned automotive parts companies have also begun to appear.

When a potential acquirer proposes acquiring an automotive parts enterprise, the principal motivation for doing so is usually vertical integration. For example, an OEM may acquire an upstream automotive parts enterprise and convert it into its supply department. Such acquisitions are mainly to reduce procurement costs.

Among similar automotive parts enterprises, for example, the logistical cost advantages arising from an automotive parts enterprise being within the support radius of an OEM support enterprise are relatively clear. It is thus possible for the OEM to successfully enter a certain regional market through cross-regional acquisition. As another example, an automotive parts enterprise of certain prominence may consider acquiring another such enterprise to enter a certain highly stratified automotive parts market or attain cross-regional development.

Du Guoping is a partner at East & Concord Partners