FAW: Volkswagen and Toyota suppliers must cut prices by 20%, or quit

Xu Liuping Since August 2nd Chairman of the new AEA Group, FAW has initiated internal in-depth reforms. At the beginning of the month, Xu Liuping expressed publicly at the University of Chicago China Summit that the red flag should be China's "first" and "only" luxury brand. Then Xu Liuping borrowed more than 20 people from FAW Volkswagen to enter the red flag. On September 18th, FAW Group held a mobilization meeting for deepening reforms to make significant changes to the organizational structure and personnel to realize the vision of “First in the country and first-rate in the world”. At the same time, FAW Technology Center has become the object of “first offensive”. The FAW Technology Center has been delisted.

Recently, according to media reports, Xu Liuping explicitly demanded that "VW and Toyota's suppliers must support FAW's independence and reduce prices by 20% on existing supply prices, otherwise they will withdraw from the FAW Group supplier system (including autonomy and joint ventures)."

A car consists of thousands of parts and components, of which about 80% of all car parts are provided by suppliers, so the supplier system is an important part of vehicle companies. However, there are reports that the control of suppliers through measures such as price cuts to obtain improper benefits is a well-known unspoken rule in the industry. For FAW's "price reduction of 20%" news, insider of FAW-Volkswagen supplier Bosch (China) Investment Co., Ltd. said that it has not yet received a price reduction notice, and that "FAW should not be so vigorous and resolute", but talked about Bosch When it comes to opinions, the person said, "There can be no opinion and no opinion." In addition, Jiangsu Danyang Red Light, which provided the lights for FAW-Toyota, also stated that “there is no news in this regard.”

There are suppliers of spare parts to this, said: "At the beginning of each year, automakers will propose a price reduction of 6%-9%, only the more advanced technology of the core spare parts can temporarily escape the fate of being depressed. In addition, spare parts suppliers The payment is slower. After the goods are given, the payment will be a year later."

In 2016, the cumulative sales volume of FAW Group was 3.147 million units, a year-on-year increase of 10.9%. FAW-Volkswagen sales volume was 1.315 million units, FAW Audi sales volume was 589,000 units, FAW Toyota Motor Corporation was 658,000 units, and joint venture brands contributed 80% of sales. In 2016, FAW-Volkswagen became China’s first car company with a revenue of more than 300 billion yuan and paid nearly 50 billion yuan. According to the sum of profit and tax (profit + tax), the profit is calculated at 60%, and its profit is about 75 billion yuan. Among them, the net profit loss of FAW Car attributable to the shareholders of the listed company in 2016 was between RMB945-97 billion, and the basic earnings per share was about RMB0.58-0.60.

Through the data, we can see that the main profit of FAW Group comes from the joint-venture brand. In the face of Xu Liuping’s strong supply chain price reduction of 20%, whether the supplier will cut the price by 20% for FAW-Volkswagen and FAW-Toyota is unknown. If Xu Liuping presses down the supply chain price cuts The implementation of the 20% strategy on the implementation of FAW's independent costs will be further reduced, which will ease the pressure on FAW Cars and FAW Xiali who have suffered losses year after year.