Frost & Sullivan’s 2016 analysis of ‘Global Remanufacturing of Automotive Parts’ predicted that China would become one of the hotspots for remanufacturing of auto parts by 2022. Underpinning this prediction were some key factors:
- The growth in average age of vehicle parc in China from 3.5 years in 2016 to about 5 years in 2022 that would trigger the need for remanufactured parts
- China’s 6% share of global automotive parts remanufacturing, with global remanufacturers such as Cummins, CAT, Bosch, BorgWarner (Remy), Delphi, and WABCO supplying remanufactured auto parts from their factories located in China
- The increasing acceptance of remanufactured parts spurred by the entry of more global remanufacturers, including global OEMs such as Volvo and Mercedes-Benz, with remanufacturing factories in China
Findings from Frost & Sullivan’s Global Automotive Aftermarket Outlook, 2019 reveals that the 2016 prediction is moving in the right direction:
- China is inching closer to becoming the world’s biggest automotive market; vehicle parc was estimated at 233.3 million, accounting for 18% of the global vehicle parc of 1.32 billion, and second only to the U.S market with 273 million vehicles
Currently, about 90% of the vehicle parc in China is 0-7 years old and is forecast to age further
In addition, OEMs are likely to follow the lead of Mercedes-Benz which started producing remanufactured engines and transmissions at its Shanghai production facility in early 2019.
Previously, there were several barriers to remanufacturing in China. For instance, policies directing end-of-life automotive components—including engines, steering parts, gearboxes, and axles that are widely considered for remanufacturing in North America and Europe— determined them to be waste, resulting in their being recycled instead of remanufactured.
In 2019, Government policies changed, providing a massive boost to the remanufacturing industry in China. For example, a new legislation was passed on 1st June 2019 that paved the way for 5 major end-of-life assembled parts to be considered for remanufacturing – engines, steering gears, transmissions, front and rear axle assemblies and frame. These parts, which were earlier scrapped or recycled, can now be sold to remanufacturers as cores—an essential part of any remanufacturing process, constituting an old component retrieved from a failing vehicle undergoing repair—and thereafter remanufactured. However, guidelines to determine the condition of the core and its suitability for remanufacturing are yet to be ascertained.
This will generate further demand for remanufactured parts in China because engines, transmissions, axles, and steering gears are the most popular parts that are remanufactured worldwide.
Why these parts are widely remanufactured globally
- Remanufactured engines, transmissions, and axles are remanufactured to OE specs and have competitive warranty coverage but are priced 30 to 40% lower than comparable new parts. Therefore, consumers are tempted to purchase these parts for their 7 years or older vehicles when these parts typically fail.
- Remanufactured rack and pinion steering gears are about 60 to 70% cheaper than comparable new parts. In parallel, demand for Electronic Power Rack and Pinion
Steering Gear (EPS) has been increasing. If remanufacturers can maintain this significant price difference against new parts replacement, this will promote considerable demand for remanufactured parts due to the high repair costs associated with new parts.
Efforts to promote usage of remanufactured parts during repair will still be accompanied by some major challenges in China. For instance, Chinese consumers are still unaware about the benefits of using remanufactured parts as they correlate remanufactured with rebuilt or repaired parts. Secondly, legislations prohibit the use of remanufactured parts for warranty replacements triggering speculation that these parts are not of acceptable quality.
As the Chinese aftermarket evolves from being more repair-centric to service-oriented and as the Government starts to relax its policies, such as allowing global remanufacturers to set up factories in China and allowing end-of-life parts to be remanufactured, remanufactured parts will emerge as the most viable option during vehicle repair or parts replacement phase, with China poised to become a preferred destination for remanufacturing in the future.
For more information, contact: Avijit Ghosh, Director – Consulting, Mobility at avijit.ghosh@frost.com
