How a Chinese Tube Factory Survived the Auto Parts Price War

Years ago, after a long stretch in sales, I had saved some money and built a base of customers. The market still looked like it had profit in it, so I teamed up with a few people, rented a workshop, hired workers, and bought material and tooling. We worked on the shop floor ourselves every day. It was tiring, and only someone who has lived it really understands that feeling, but there was also a sense of achievement.

Our products go everywhere: cars, motorcycles, construction machinery, general manufacturing, and machines you would never think of. But the volume that really matters is automotive. China has an enormous population, and as the country grew stronger, more and more families could afford a car, so the market kept expanding. In recent years, domestic carmakers have risen fast.

Why did Chinese carmakers rise so quickly? If we had stayed on the gasoline track, I doubt it would have happened this fast or this fiercely. On gasoline cars, honestly, we still could not catch Japan, Korea, the United States, Germany or France. Electric vehicles let us overtake on a different track. As I wrote in the previous article, (From the Broken Brake Pedal Incident to the Struggle of Survival: The Stifling Reality of “Relentless Annual Price Cuts” in Auto Parts)the competition is brutal, carmakers are fighting for share, and the waves of price cuts keep rolling, seemingly without end.

Looking at financial statements where profit shrinks every year, what can you do? At first I thought about scaling up, trading capacity for profit. But the competition grinds on day and night. On some automotive lines, such as oil pipes in the common sizes 6 mm × 1.6 mm wall and 10 mm × 1 mm, prices are already at the bone. There is no room left to cut, and our competitors have no room either, because cost cannot fall forever while quality is still guaranteed. Round bar steel costs the same for everyone.

Luckily, years in the market gave me another way. We changed course in three directions:

1. We stepped back from automotive-only and went deeper into other fields to protect our base. Competition in automotive is extreme; other fields are not this fierce.
2. A factory still needs large order volumes, so we could not abandon automotive entirely. We moved into welded-drawn and welded-rolled tube for shock absorbers, bushings, working cylinders and similar parts. The oil-line track is not just crowded, it also faces shrinking demand, which makes it extra brutal. Welded-drawn and welded-rolled tube serves growing demand, though the competition is still there. I will write more later about how these two kinds of tube differ in production.
3. We began developing overseas customers, which is the whole reason this website exists.

As the years pass, my thinking has also changed. Automation, robotics and AI are moving deeper into factories, and the traditional labor-heavy model will only get harder. We have started laying the groundwork step by step. Let us talk more next time.