Remy Sees Growth in China as Market Matures

INDIANAPOLIS – Vehicle starters and alternators are proving to be a growth business for Indiana's Remy Inc. in China, despite appearing to be a product that could be manufactured by low-cost domestic manufacturers.

“In our case, there is always a Chinese counterpart whose product (costs) much less money than ours,” Remy President Jay Pittas says in an interview here. “But we’re starting to see the quality levels and expectations of what (Chinese auto makers) want come up to global standards.

“We’re down to magnetic noise now on alternators, which makes a difference in (how) quiet (a) vehicle (can be),” he adds. “You wouldn’t have talked about having a quiet small car (in China) 10 years ago.”

Remy International Inc. CEO John Weber agrees, noting while it’s tough to beat Chinese suppliers on costs, in general they can’t be counted on to make the quality product “we would expect to provide to our OEs. But make no mistake, eventually the quality will come up.”

There’s no “magic Chinese elixir” that will help maintain component quality and keep costs low at the same time, especially for a supplier such as Remy, he adds. “You can’t get away from the sheer physics of the fact that 85% of our product is copper, steel and aluminum.”

Weber cites an experiment in which his company – a leading designer, manufacturer, remanufacturer and distributor of electrical, powertrain/drivetrain and related products – purchased a component less-costly than its own from a Chinese supplier. In the end, Remy arrived at the same piece price using in-house parts.

“(But) by the time you add world-class bearings, world-class electronics, guess what? The price is $20,” he says.

Remy supplies components for Geely and other Chinese auto makers.

China presently accounts for 15% of Remy’s global sales, with average annual growth of 30%-40%. The international unit (formerly called Delco Remy International) has both a joint venture and wholly owned operations in China.

The JV, established by Delco Electronics Corp., a former subsidiary of General Motors Corp., began with producing alternators for Buicks made by the newly formed Shanghai General Motors Co. Ltd.

In addition to supplying foreign JVs, Remy today sells to many of the major Chinese auto makers, including Geely Holding Group, BYD Auto Co. Ltd. and FAW Group Corp. The company supplies components for both passenger cars and commercial vehicles, as well as for the aftermarket.

Remy now hopes to make inroads selling hybrid motors in China. The company considers itself the largest merchant supplier of hybrid motors in the world, with customers such as BMW AG and Daimler AG, as well as GM.

“We haven’t yet made the penetration we hope to make in the hybrid products (in China),” Weber says. “But we’re optimistic in both (the potential volume) and that we can bring enough value in the products to really be a compelling solution for them.”

Buses appear to be the most logical application for hybrid motors, Pittas says, based on their stop/start cycles and need for high torque. On the car side, Remy is supplying a starter/alternator for a mild hybrid taxi from Chery Automobile Co. Ltd., which Pittas calls a “stop-gap.”

Doing business in China continues to have its risks, both men agree, citing the loss of intellectual property as their primary concern.

“Protect your technology,” Weber advises. “No matter what Chinese government officials say about cracking down” on counterfeiting. The simple solution is not to give “Chinese-owned firms access to your latest technology.

“And when you do, make sure you put it in a wholly owned company or something you truly have control of. There is no magic answer,” he says, citing a story from a former employer whose product was copied by a Chinese firm down to a flaw in the casting.

While their skill-set currently does not meet Western standards, Pittas believes the Chinese will take the automotive technological lead sooner than later.

“(The Chinese) are graduating 250,000 engineers a year; we’re graduating 75,000,” he says. “Even if you assume half of their graduates are not up to Western standards, you’re still talking about a 2:1 or 3:1 (ratio). How long do you think we can maintain a productivity and technological advantage with those numbers?”

However, the imbalance in engineering talent is not a hopeless situation. “It doesn’t mean you give up and go home,” Pittas says.

“That’s the reality of what’s there, and that’s the point of our wanting to be (in China) now. Because I can take advantage of exactly that situation and use (the country’s) desire for growth in the local market and create a very profitable business.”

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