XYZ Automotive Parts Report

Longmashen Enterprises Ltd
Shanghai, China
Phone: +86 13901712880
E-Mail: Longmashen@gmail.com
Business
Intelligence
Report
XYZ
Automotive
Parts
Prepared for
ZYX
January 12, 2013

Business Intelligence Report on XYZ 2
Table of Contents
Key Information 3
Executive Summary 4
XYZ Automotive Parts Co., Ltd
 Company Origins and Ownership Structure 5
 Company Description 6
 Footprint 8
 Products by customer 9
 Partnerships 13
 Competition 13
 SWOT 14
 Activities of Note 16
 Detailed Financial Information
o Registration Information 18
o Balance Sheet 19
o P&L 20
Opinions of the Authors 21
Authors: Keith Lomason & Billy Quan
Report Methodology
This report is compiled from three sources of information:
1) Internet data, mostly in Chinese, translated, summarized and organized in a logical fashion
2) Interviews with individuals who have had direct interaction with XYZ and/or GE and/or ACME, including a
former buyer for Shanghai Volkswagen, a former buyer of Shanghai General Motors, a former Purchasing
Manager of First Auto Works Volkswagen, a supplier quality development engineer of SGM, and a sales
director of Magna Steyr
3) Financial data acquired from a government financial bureau contact
DISCLAIMER
This material is based upon work donewithout knowledgeof theidentity of theclient oritsspecific intentions orconcerns. Dueto this
restriction, and thecompressed timeallotted for this study, this report ismoregeneral in naturethan weprefer to publish.
Any opinions, findings, conclusions, orrecommendationspresented herein ordeveloped in subsequent discussions as aresultof this report are
thoseof theauthors or theinterviewees and should beweighed carefully by theclient for applicability.

Key Information
xxxxxxxxxxxxx (XYZ)
yyyyyyyyyyyyy Road
zzzzzzzzzz, Jiangsu, China 22…..
http://www.XYZ.com
PH: +86 514 8784 6666
Fax: +86 514 8784 6888
XYZ Automotive is specialized in developing, manufacturing and selling the automotive plastic
fuel tank (PFT). With headquarters and R&D centers in zzzzzzzz, Jiangsu, China, and more than
10 manufacturing plants located strategically throughout the country, XYZ dominates the
domestic PFT market with over 50% share, and is the only domestic PFT manufacturer to export
its product and technology.
XYZ supplies high quality, high tech PFTs to major global OEMs in China including VW, GM, Ford,
and Mazda and is frequently singled out as an outstanding supplier. XYZ has been successful in
this market because of its focus on quality, technology, and lean manufacturing processes.
In recent years, XYZ has begun to expand globally, opening facilities (alone or with partners) in
Russia, India, Australia, and the Czech Republic, primarily to supply Hyundai, PSA, VW, Ford and
GM.
Financial Basics
RMB Yuan (Billion)
2011 (Dec 31) 2010 (Dec 31)
Turnover 3.04 Turnover 2.48
Y-Y Growth % 30% Y-Y Growth % 23%
Total Assets 2.14 Total Assets 1.78
Total Liabilities 1.25 Total Liabilities 1.06
Total Equities 0.87 Total Equities 0.69
Debt/Assets % 58% Debt/Assets % 60%
*Note: there are some discrepancies between this 2010 consolidated information and the
“official” financials at the end of this report, due to closing date differences.
Main Investor
Government Entity (GE) 66.1% Shares
ACME 33.9% Shares
Key People
Mr.xxxx Hua Chairman, from GE
Xxxx wei Vice Chairman, from auto Group
Mr.xxx Yan President (GM), from GE
Executive Summary

XYZ is one of China’s smaller industrial success stories. Subordinate to ZYX and the GE, XYZ has
not only developed its own Plastic Fuel Tank (PFT) design, engineering, testing and production
capabilities, but has done so without diluting itself with any foreign ownership.
XYZ has experienced an average annual growth in sales volume of nearly 30% over the last six
years while revenue growth has been slightly better than this on their way to accomplishing
their three targets set in 2010:
1) Enter the North America and Europe markets in 2011
2) To be completely self sufficient as a global supplier in 2012
3) To be among the top three global fuel system suppliers by 2015
XYZ has proven that they are self-sufficient for growth in China and in several developing auto
markets, but they have failed to enter the North American or the developed European market
spaces.
In China, XYZ has pursued an aggressive growth plan by opening wholly owned operations in
eight centers of automotive production. Where they were pressured to have a local partner, XYZ
formed joint ventures to manufacture PFTs in Wuhan and Wuhu.
XYZ enjoys government favor for being the first automotive supplier to sell technology overseas
and for opening an overseas joint venture. They sold technology to India’s Zaapl and formed a
manufacturing joint venture in India years later with Zaapl’s subsidiary, Zoom.
After failing to grow a technical relationship with Inergy into an equity joint venture, XYZ formed
a strategic alliance with Doremi of North America primarily in order to jointly quote on global
platforms, extending the ability of both companies to participate in these quotes even though
individually they may not have manufacturing where the customer requires it. This
arrangement, however, will not directly lead to business where they want it – North America
and Europe.
XYZ is in danger of missing its 3rd goal of becoming a top three global fuel system supplier by
2015 unless it can achieve its #1 goal of entering the North American and European markets. As
it stands, the relationship with DOREMI is not about XYZ opening facilities in those markets, so
another strategic plan must be in place soon. One logical path would be to try and expand the
existing agreement with Doremi. Another would be to bring in a new player who may see some
benefits of tying up with XYZ.
In either case, the foreign party had better be prepared for some lengthy and difficult
negotiations.

Company Origins and Ownership Structure
XYZ was founded in December of 1988 by the GE and ZYX in order to localize the production of
Plastic Fuel Tanks (PFT). XYZ was founded specifically to supply PFTs for Shanghai Volkswagen
(SVW), China’s oldest automotive joint venture still in operation. XYZ has grown substantially,
and now dominates the PFT market in China and is expanding globally.
Being one of China’s “Big Three” government owned auto OEMs, ZYX was given the charge in the
1980’s to grow the domestic ability to manufacture as many car parts as possible, and they
identified PFTs as an early target. GE, subordinate to the State-owned Assets Supervision and
Administration Commission of the China State Council (SASAC), is basically a government-
controlled investment company. It appears that XYZ represents one of the few investments GE
has made in auto parts manufacturing, while most of their investments are in areas of natural
resources and infrastructure.
In the first decade of the 2000’s, ZYX restructured itself, segregating its automotive assembly
operations from its automotive parts manufacturing operations, and named this parts group
(ACME). ACME is a separate company now, and it is a stock-listed company, with ZYX Motor
holding over 60% of ACME shares. Interestingly, ZYX Motor’s government “parent” is the ZYX
Group, which also has SASAC as its controlling authority, via SASAC’s Shanghai arm - SSASAC.
XYZ
ACME
ZYX Motor
GE ZYX Group
SSASAC
Shanghai
SASAC
National
66.1% 33.9%
60.1%
74.3%

Company Description
XYZ is one of China’s model enterprises – on the surface at least. Because it is privately held by
GE and ACME, financial reports are not easily available, and the people interviewed for this
report are familiar primarily with their commercial relationships – QTSP aspects – and not with
XYZ’s overall performance. The financial reports we have been able to acquire should be
considered an “indication” of performance more than an actual snapshot of performance
because State-owned or controlled enterprises in China are often able to be “creative” with their
report categories and/or processes.
According to their own publications, XYZ has grown from a producer of one PFT for the VW
Santana, to the largest PFT producer in China, supplying over 50% of the domestic demand.
Much of their initial growth was due to the fact that they were competing with an import price,
and not with domestically located competitors. This, coupled with the likelihood that their cost
of land, construction, capital equipment, and capital were all at a discount to any competitor
provided financial advantages, while the fact that one of their parents was and remains the most
successful Chinese auto OEMs undoubtedly played a key role in the XYZ’s success.
All of that being said, XYZ could not be the major PFT manufacturer they are today if they were
making sub standard product from both a quality and especially a safety perspective, so their
management has had proper focus on acquiring and/or developing their own manufacturing
technologies.
A quick look at XYZ PFT sales volumes for the last seven years shows substantial year-on-year
growth (better than the car industry average) with a slowdown in 2011:

Sales revenues have increased accordingly during the same period, except that 2011 seems to
have increased more than the volume increase would have warranted:
By 2010 XYZ had established three development goals:
Their strategy for accomplishing these goals includes focusing on global OEMs as key target
customers and to aggressively pursue China domestic automakers as customers.

Footprint
XYZs original factory, headquarters and R&D facility are all located in Yangzhou, China.
Yangzhou is in southern Jiangsu province, approximately 1 hour’s drive from Nanjing and 4
hours from Shanghai. One key aspect of XYZ’s success has been to set up facilities around China,
close to their OEM customers, which creates barriers to entry for their competition. XYZ now has
facilities located in the following Chinese Cities:
Wholly-Owned Subsidiaries – Yangzhou, Shanghai, Chongqing, Changchun, Chengdu, Yantai,
Tangshan, Yanchen
Joint Ventures (XYZ/Partner) – Wuhan (50/50 with Wuhan Plastics), Wuhu (55/45 with Chery).
In addition, XYZ has established wholly-owned facilities in Russia, Australia and the Czech
Republic, and a joint venture with Zoom in India.
XYZ Global Footprint
Preliminary data indicates that the foreign facilities are established to initially supply the
following customers:
India (JV with Zoom) – Ford & Hyundai
Australia – General Motors
Russia – VW, Skoda Favia & Octavia, Mitsubishi & PSA Peugeot Citroen
The Czech Republic - Volkswagen
Customers and products

XYZ’s main customers are the largest European and American OEMs in China, but they are in the
supply chain of all of these customers:
Volkswagen AUDI GM CITROEN
FORD KIA Peugeot Renault
VOLVO TOYOTA FAW ZYX
MAZDA CHRYSLER GEELY SKODA
GWA CHERY CHEVROLET SUZUKI

Specific products for major customers are as follows:
For Shanghai VW:
PFT for Santana PFT for Passat PFT for GOL
PFT for POLO PFT for Touran PFT for Octavia
PFT for Superb
For FAW VW in Changchun:
PFT for Jetta PFT for Audi-A6 PFT for Audi-A4
PFT for Caddy PFT for New-Jetta
For Shanghai General Motors in Shanghai and Yantai:

Buick GL8 Buick Excelle Cadillac SLS
Epica Buick Regal
For Ford Mazda in Chongqing and Yangzhou:
Mondeo Fiesta Focus / Mazda 3
Volvo 340/345 B376

For Dongfeng PSA in Wuhan:
Fukang Peugeot 307 Peugeot 206
C-Triomphe Picaso
For Chery in Wuhu:
QQ B11 B14
S21 B13

Partnerships
XYZ has two manufacturing partnerships in China and one overseas. The joint ventures in China
were likely established because the local partner had enough “guanxi” or clout with the local
OEM and/or government to prevent XYZ from forming or being successful as a wholly owned
facility. These joint ventures are in Wuhan, with Wuhan Plastics, and Wuhu, with Chery
Automotive (the OEM). The overseas JV is in India with Zoom to supply Ford.
Wuhan Plastics likely had good business and strong relationships with Dongfeng Auto and the
local Wuhan government, but Peugeot was probably demanding higher quality and better
technology than Wuhan Plastics was providing. The solution was to allow XYZ into the supply
chain, but only as a partner to Wuhan Plastics. This is a typical political compromise in China.
XYZ/Chery 55/45 Joint Venture established 2007 (XYZ’s Wuhu factory was established in 2003,
it is unknown who approached who to form the JV).
Historically, Chery Automotive forces suppliers to form a JV with them if they want to break into
the supply base. This is done primarily so that Chery can absorb the technology into their
organization. Unfortunately for the foreign partner, Chery does not agree to any exclusivity, so
they frequently have two or three JVs with different partners manufacturing the same types of
products, so none of them end up in a dominant (or profitable) position.
DOREMI Group Strategic Alliance
From the July 22, 2010 DOREMI News Release:
“The two companies have formed an alliance to provide plastic fuel tanks across three
continents: North America, Europe and Asia.”
The authors of this report have no access to either party in regards to the specifics of this
alliance, but it can be assumed that DOREMI has been struggling to find ways to successfully
enter the China market – hence their recent China Joint Venture with ccccccc-Huaxiang – and
they want to stay aware of XYZ’s moves overseas so they can react appropriately to protect their
existing customer and product base outside China.
Competition
The key global competitors for XYZ in China are:
KAUTEX – The German division of Textron has four facilities in China
TI Automotive – A total of eight facilities in China, but not all making PFTs
Inergy – Two locations in China
YACHIYO Industry of Japan– Three locations in China
Domestic competitors include:
Wuhu Shunrong
Jiangsu Suoguang

SWOT
SWOT ANALYSIS FOR XYZ AUTOMOTIVE
Strengths Weaknesses
Cost Small European Footprint
R&D Competency No North American Footprint
Multiple Mfg Locations Lack of OE Global Platforms
Strong Government Relations
Strong Relations with ZYX
Opportunities Threats
Alliance with DOREMI for
Expansion
Global Competitors flocking to China
Strong Financial Resources Local competitors growing
"In" with VW & GM via ZYX
Strengths:
Cost – While the playing field is becoming more level, XYZ’s cost of capital, land and domestically
manufactured equipment is undoubtedly lower than any foreign competitor setting up shop in
China. This allows their product end price to be more competitive.
R&D Competency – XYZ has had more than 15 years of working with global OEMs on localizing
PFTs for global platforms. While much of their product development has been limited to the
small to mid-size sedan segment, the technologies and manufacturing processes are similar to
those needed for larger passenger and commercial vehicles. XYZ claims its R&D center has the
only “complete set of testing facilities in China” for PFT manufacturing, and is approved by VW,
as well as having earned 3rd party QS, ISO, TS and OHSAS certifications.
Multiple Manufacturing Locations – XYZ has positioned itself well in China so that they have at
least one manufacturing or service facility within a two hours driving of every major OEM.
Strong Government Relations – As a recipient of SASAC investment, XYZ has a direct line to
(Central) government authorities to request assistance in entering a new domestic market or in
limiting the scope of competitors entering China.
Strong Relationship with ZYX – The “bigger picture” for ZYX Group is to ensure China develops
all competencies in designing, engineering and manufacturing globally competitive vehicles. XYZ
is already a domestic success story, and all parties involved will do whatever they are asked or
told in order to ensure this continues.

Weaknesses:
Small European Footprint – XYZ opened a facility in the Czech Republic last year to supply PFTs
to Volkswagen. XYZ is working on leveraging their relationship with VW and other global OEMs
to win business in Europe, but this will not come rapidly – there are incumbents for most
programs and very few platforms take their cues from the China “derivative” vehicle.
No North American Footprint – XYZ has not yet been able to find a clean entry into the North
American market. Their most likely opportunities will come on small Ford or GM vehicles which
are being built in China today but may be designed/refreshed in China in the coming years.
Lack of Global OE Platforms – While the list of PFTs by customer above may look impressive, it
represents a very small proportion of the vehicles being built globally. XYZ does not have the
history or the interaction with the Global OEMs in Europe or North America that they will need
in order to win substantial business in those regions.
Opportunities:
Agreement with DOREMI – Per the official news releases and analysis, the main benefit of this
agreement should be that XYZ and DOREMI together will be able to submit more competitive
quotes on programs that demand multiple manufacturing locations. In theory, XYZ would be the
manufacturer in China, and perhaps Russia and India, where DOREMI would be the
manufacturer in North America and Europe, but the quote would be jointly submitted by these
two partners to the customer.
Strong Financial Resources – With GE and ZYX Motor behind them, XYZ has access to resources
well beyond whatever they could need for international expansion.
“In” with VW & GM via ZYX – One product line at a time, XYZ has localized the production of PFTs
for most of SVW and SGM products. As both of these companies rely more and more upon their
China engineering and design centers for work on global platforms, XYZ stands ready to assist
early on in the process. XYZ also has the resources to build prototypes and test them in China.
This integration with these two major OEMs is already leading to opportunities outside of China,
and this will only continue.
Threats:
Global Competitors Flocking to China – XYZ is now the 4th largest PFT supplier in the world, but
much of that growth (or at least the groundwork for that growth) came before the top three PFT
suppliers were fully established in China. Now that Inergy, TI, Kautex, Yachiyo and a few others
are well established, XYZ’s growth will not go so unchecked.
Local Competitors Growing – While listed as a threat, this is currently a small one. XYZ has
successfully positioned themselves as the leading domestic full service PFT supplier and most of
their competition will come from the global companies listed above.

Activities ofNote
XYZ has been the largest manufacturer of PFTs in China since its official start in 1988.
In an effort to grow beyond being a “black box” manufacturer, XYZ acquired technology from
Inergy in 2001 that would allow them to manufacture and co-develop the more complex fuel
tank for the localized VW Polo.
XYZ’s relationship with Inergy continued to grow over the next several years, and in January
2005 a MOU was signed wherein Inergy was interested in acquiring a majority stake in XYZ. It is
assumed that GE was interested in selling its shares, and ACME would keep its shares. What is
not known is why the relationship fell apart in February of 2006. Possibilities are numerous, but
could include the Chinese parties were not willing to give up more than 50% or that Inergy was
not willing to share foreign markets with XYZ, or XYZ deciding that they no longer needed what
Inergy was offering, among others.
It may or may not have been a factor that XYZ was the first Chinese auto supplier to sell
technology to an overseas company when they signed a deal with ZAAPL of India, and that one of
their targets published that year was to create “open cooperation strategies for autonomous
development.”
Notable events in XYZ History:
1988 XYZ established to localize VW Santana PFT
1995 Wuhan XYZ JV (50/50)
1999 Tangshan XYZ JV
2001 Inergy sells tech for Polo FT to XYZ
2002 Anting XYZ
2003 Shanghai XYZ
2003 WuhuXYZ
2003 Chongqing XYZ
2003 Tangshan (buys out partner)
2004 Yanchen XYZ
2004 Changchun XYZ
2005 MOU btwn Inergy & XYZ
2005 XYZ sells tech to India ZAAPL – A China first
2006 Inergy backs out – XYZ feel they can go it alone
2007 Chongqing XYZ
2007 XYZ-ZOOM – A China first
2007 Sales top 1bn CNY
2009 Russia XYZ
2009 Chengdu XYZ
2009 Australia XYZ
2010 DOREMI Agreement
2011 August – announce plans for 2nd Russia Factory

Detailed Financial Information
Company Registration Information
Company
Registration NO.
xxxx
Company
Type
Holding Company
of Limited Liability
Company Name
XYZ AutomotiveParts
Co., Ltd
Company Address xxxx Postal Code 22xxxxx
Legal Representative xxx, Jian
Registered
Capital
RMB 450,000,000
Industry Category
Industry
Name
Operation Range
Manufacturing, Sales, Technology Development, Consulting, Service and Transfer of
AutomotiveParts and Plastic Products;Imports and Exports of Mechandises and
Technologies for itself or as an agency, excluding those prohibited or restricted by the
government.
Founding Date July 4, 1993 Tel: 0514-87846817
Share Holder GE
As of
12/31/2011
Investment RMB 252,450,000
Share Holder ZYX Investment RMB 152,550,000
Share Holder
GE (Beijing)
Innovation Investemnt
Fund Co.,Ltd
Share Holder
Beijing GE Xieli Equity
Investment Fund

BALANCE SHEET
XYZ Automotive Parts Co., Ltd November30, 2010
Unit: RMB Yuan
Assets Amount Liabilities andEquity Amount
Current Assets Current Liabilities
Cash Fund 225,239,141.87 Short-term Borrowings 313,390,496.39
NoteReceivable 27,000,000.00 Notes Payable
Account Receivable 253,838,475.19 Account Payable 509,231,315.85
Account Prepaid 117,406,501.37 Account Pre-received 4,867,234.40
Interest Receivable 333,499.34 Salary Payable 30,977,365.69
Divident Receivable 10,000,000.00 Tax and Fee Payable 22,098,212.24
Other Account Receivable 14,232,689.28 Interest Payable 1,981,811.12
Inventory 345,971,522.55 Profit Payable (Dividents) 110,000,000.00
Other Account Payable 673,618.38
Total Current Assent 994,021,829.60 Total Current Liabilities 993,220,054.07
Non-current Assets
Non-current
Liabilities
Soldable Financial Assets 11,383,938.76
Long-term Equity Investment 247,941,355.60
Fixed Assets 386,902,178.19
Project in Construction 4,181,682.66
Intangible Assets 29,139,330.80
Long-term Deferred Expenses 1,178,156.00
Deferred Tax Payment (Credit) 2,726,167.53 Deferred Tax Debt 2,574,047.61
Total Non-current Assets 683,452,809.54 Total Current Liabilities 2,574,047.61
Total Liabilities 995,794,101.68
Total Equit 681,680,537.46
Total Assets 1,677,474,639.14 Total Liabilities and Equity 1,677,474,639.14

PROFIT & LOSS
XYZ Automotive Parts Co., Ltd November30, 2010
Unit: RMB Yuan
Item 2010 2009
I. Operational Revenue 2,234,082,402.00 1,595,450,273.78
Including:Revenue of Principle
Operations
2,036,035,559.33 1,437,720,748.23
Other Operational Revenue 198,046,842.67 157,729,525.55
Minus: Operational Costs 1,866,021,217.77 1,322,848,508.23
Including: Costs of
Principle Operations
1,697,488,356.85 1,181,354,836.89
Other Operational
Costs
168,532,860.92 141,493,671.34
Taxes and Surcharges from
Operations
3,182,091.36 3,639,160.86
Sales Expenses 35,790,528.06 24,950,577.07
Administrative Expenses 110,459,411.88 82,388,255.67
Financial Expenses 10,699,237.22 10,846,740.04
Losses from Asset
Adjustments
-6,891.47 -179,999.36
Plus: Earnings from Re-valuation
Income from Investment 16,345,777.55 16,548,028.50
Including: Income from
Investment from
Subsidiaries
II. Operational Income 224,282,584.73 167,505,059.77
Plus: Non-operational Revenue 5,278,446.38 2,741,207.94
Minus: Non-operational Expenses 1,429,579.91 2,287,065.41
Including: Loss from Non-
current assests
III. Income before Tax 228,131,451.20 167,959,202.30
Minus: Income Tax 29,496,673.96 25,816,780.55
IV. Net Income 198,634,777.24 142,142,421.75

Opinionsof the Authors
XYZ currently has three key business targets established in or before 2010:
XYZ has only partially accomplished #1 – they still need a North American presence, and they
only have one facility in eastern Europe.
XYZ believes they have achieved #2 – they are selling technology and opening wholly owned
facilities overseas.
XYZ has three years to gain significant sales growth in order to achieve target #3.
In creating these targets, XYZ surely was aware that it is normal for an OEM to maintain at least
two, if not three suppliers of key components. PFTs are certainly one of these key components.
XYZ has more than a 50% share of the China PFT market, so they must realize that further
growth will be difficult (not in volume, but in market share).
This means their growth opportunities primarily exist overseas, and XYZ has done a good job of
working with their global OEM customers in China to identify platforms and products for which
they could establish foreign operations – hence the factory openings in Russia, India, Australia
and the Czech Republic. However, none of these factories are in (or very close to) the OEM’s
home territory.
The authors believe that XYZ is under pressure to expand globally faster, and especially to get a
foothold in the North American market so that they can check off target #1 listed above, and
have a better chance of achieving #3. If they cannot “reverse engineer” a situation in North
America as they have in Europe, then they must pursue a more direct path with an existing Tier
1 supplying OEMs in North America.
XYZ and ACME have proven to be very much in line with the generalizations that the Chinese are
patient, thoughtful, and focused on the long-term. They have laid out their targets, pursued
actions to accomplish those targets with the best strategies and partners they could identify, yet
they have not lowered their sights in order to secure a deal on a deadline.
If XYZ is pursuing a new partner or acquisition, it will be for the very specific reason to gain a
substantial footprint in both North America and Europe. They will be tough negotiators, who will
give very little and expect a lot. A foreign party expecting to cut a good deal with XYZ/ACME
needs to be prepared to bring their best negotiators to the table.

XYZ Automotive Parts Report

Recommended

Recommended

More Related Content

What's hot

What's hot (9)

Similar to XYZ Automotive Parts Report

Similar to XYZ Automotive Parts Report (15)

Recently uploaded

Recently uploaded (20)

XYZ Automotive Parts Report