Gaizhuang

SEMA News - December 2009

The Specialty-Equipment Market in China

The SEMA delegation posed for a picture at the opening ceremony of the third annual China International Auto Parts Expo (CIAPE). “We were very impressed by the show, especially in such a young market,” said Michael Rudenko, managing partner of Rennsport Imports. “It compares very favorably to other shows that we have attended in emerging markets.”

Thirteen SEMA-member companies recently traveled to Beijing, China, for a firsthand look at the developing Chinese market for specialty products—or, as referred to in Chinese, Gaizhuang.

In its infancy, the Chinese market for performance and accessory products is not so unlike the U.S. market of 40 or 50 years ago. On one hand, it is brimming with opportunity as millions of consumers develop a growing taste (and the necessary disposable income) for vehicle personalization. But a closer look at the market reveals a sector riddled with sporadic government crackdowns on car modifications (in Shanghai in 2007 and most recently in Beijing); numerous performance products still technically illegal; far-flung population centers only partially served by the fragmented network of distributors; and the presence of frequent intellectual-property violations. It’s essential that companies take the necessary steps to minimize their potential IPR vulnerability in China and worldwide. Yet, despite this, the delegation overwhelmingly concluded that the largest mistake SEMA members could make would be to underestimate the market and the potential it holds for many SEMA members.

“This market will explode over the next five years,” said SEMA Chairman Rick Rollins, who headed the delegation. “Cars are new to this population. However, the car enthusiasts are very familiar with what is available and what can be done to their vehicles, and they are going to do it.”

The China International Auto Parts Expo (CIAPE), a Beijing-based show sponsored by the Chinese Ministry of Commerce and now in its third year of operation, served as the backdrop for the visit. Networking events, briefings by U.S. and Chinese government officials, tours of retail performance and accessory outlets and distributors and a visit with media rounded out the trip.

From left: SEMA Chairman Rick Rollins, SEMA Vice President of Communications and Events Peter MacGillivray and SEMA Senior Vice President of Operations Bill Miller examined products on display at CIAPE. The show featured 1,400 automotive aftermarket exhibitors, including two halls dedicated to specialty products. Five halls featured domestic manufacturers of repair and replacement products; two others featured specialty products; another was reserved for overseas-based manufacturers; and a ninth covered mobile electronics.

Tim Watts (center) of Superlift Suspension Systems talked with Zhong Hua from T Max, one of dozens of distributors and retailers meeting with the visiting SEMA delegation.

FB Life founder/Managing Editor Kevin Lv (center) and Off-Road Tuning Chief Editor Bo Jiang—pictured with SEMA Market Specialist/Asia-Pacific Region Yvonne Wang—provided SEMA with an overview of the Chinese off-road market. This segment of the market has been growing rapidly due to the great popularity of off-roading and the generally hands-off approach regarding government regulations.

A visit with political, economic and commercial officers from the U.S. Embassy in Beijing was the first stop on the SEMA delegation’s stay in China. Alan Peltier (far left), president of HRE Performance Wheels, participated in a lively discussion regarding the Chinese automotive parts market. Also pictured (left to right) are SEMA CEO and President Chris Kersting; Noah Zaring, first secretary of the political section of the U.S. Embassy in Beijing; Michael Kazakov of Rennsport Imports; and Brian Wald, CEO of Professional Products.

Upon their return to the United States, Michael Rudenko (left) and Michael Kazakov of Massachusetts-based Rennsport Imports reflected on the numerous Chinese companies they met with during their visit. They noted that the market contains a wild combination of knowledgeable and sophisticated players mixed in with amateur ones who are new to the industry and have very limited knowledge. However, they noted that there is a tremendous potential in the market, and people seem to be willing to spend money on big-name brands and quality parts.

Rollins talked with CIAPE Chairman Rengui Li. In a meeting with the SEMA delegation, Li noted that the Chinese government remains supportive of the development of the specialty-equipment market in China and that the initial list of 506 specialty products designated as “legal” in October 2008 will be followed soon by additional market-opening measures.

SEMA management met Vice Minister of Commerce Chen Jian (left). The vice minister emphasized the government’s support for vehicle customization and pledged to work with SEMA to further open the market.

From left: Chris Luhnow, HRE Performance Wheels Chairman/CEO and HRE Performance Wheels President Alan Peltier talk with Tan Jiao from Dyno King Shenzhen (front, right). At the far table, Brian Wald, CEO of Wald/Professional Products meets with a group from Beijing-badged Full Throttle. The SEMA delegation had a opportunity to meet with 30 Chinese distributors and retailers in one-on-one meetings.

Wald noted that there is a market for the right products. Today, it’s for SUVs, Jeeps and Asian compacts. He said that international property-rights issues seem daunting in China but questioned whether this is sufficient reason to ignore sales in the Chinese market.

Kenneth Merritt (right), vice president of Bushwacker Inc., shared a toast with Yunliang Zhu, founder and CEO of Yunliang 4WD. Merritt concluded upon his return to the United States that the Chinese specialty market is in the infant stage now but will grow to compete with the world’s largest, if not become the world’s largest, in the next five years. He said that opportunity is the single most important factor in the Chinese specialty market that SEMA members should be aware of.

MacGillivray responded to a question posed by a large Chinese distributor of off-road products on the upcoming SEMA Show, noting the expanded efforts SEMA is making to facilitate networking between exhibitors and international buyers.

Ben Mizban (left) of California-based T-Rex Truck spoke with Yuan Bian of Energy Square, an off-road retailer and wholesaler of Jeep products. Roof racks, grille guards and winches are among the most popular products sold by the Beijing firm.

Jim Donohue (right) of the Truck Accessories Group posed with China 4WD founder Yang Xuesong. China 4WD customizes SUVs and is one of the first in China to also modify a significant number of pickups. The off-road segment of the Chinese market has been growing rapidly due to the great popularity of off-roading and the generally hands-off approach regarding government regulations.

The SEMA delegation visited Yunliang 4WD, one of an estimated 30–40 larger-scale off-road firms. Yunliang 4WD was established in 2002 and supplies off-road products to more than 120 retail outlets. This vertically integrated company is involved in importing and distributing products to shops throughout China and is also a busy installation and retail operation.

Alex Borla (left) talked with Brian Jian, the owner of Full Throttle. “China is a market that will grow in leaps and bounds,” said Borla, a frequent visitor to China. “China plans on building, marketing and selling more than 10 million cars. Three percent of the population is super rich, which is just shy of 40 million millionaires. They have the money as well as an insatiable appetite to experience all that we have over the last 50 years. This only proves that man’s love affair with the automobile is infectious. Within five years, China can very well become the single largest market for specialty products,” said Borla.

Ray Sheen (right) of Sheen Coatings spoke with Qiang Li (left) and Jia Zhao of Motor China. Sheen noted that U.S. products have a good reputation in China.

The SEMA delegation met with local enthusiast media. Pictured from left to right are Kazakov from Rennsport Imports, Joe DeSantino of JDS Worldwide, Rudenko, and Sheen speaking with Managing Editor Vitara Zhen (second from right) of Modi Auto.