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The challenge to Weichai’s “Golden Supply Chain”

After taking over dominant shares of Shaanxi Heavy-Duty Automobile, Fast Gear and Hande Axle through the acquisition of Hunan Torch, Weichai Power (Weichai) has been proud in forming a so-called “Golden Supply Chain” in heavy-duty manufacturing.

As a leading heavy-duty diesel engine supplier, Weichai is now in control of not only Fast Gear and Hande Axle, the country’s leading heavy-duty transmission and axle manufacturers, but also Shaanxi Heavy-Duty Automobile, the county’s No. 4 truck maker.

Benefiting from the unprecedented demand in the country’s heavy-duty truck market in the first half of this year, Weichai’s engine business boomed by 115.69 percent. Meanwhile, Fast Gear, the monopolizing transmission maker, reported that sales in the first six months almost approached the total number for 2009. Hande Axle sold more products in the first half of 2010 than it sold in the entire preceding year. Between January and June, the company produced 202,000 units and sold 193,000 units, up 165 and 157 percent respectively, compared with the same period in 2009. Shaanxi Heavy-Duty Automobile experienced a 118 percent increase on heavy-duty truck sales, finishing the first six months with 64,483 units sold.

While the “Golden Supply Chain” has provided Weichai and its subsidiaries a competitive edge and helped solidify the company’s market shares, the Shandong-based engine maker is facing growing competition from other leading OEMs that have also been actively building up their in-house supply chain.

China National Heavy-Duty Truck Group Corp., Weichai’s former parent company and major customer, is now well equipped with engines made by its Jinan Power Co., Ltd. and Hangzhou Diesel. It has also entered into a strategic partnership with MAN of Germany in developing engines that meet Euro IV and V emission standards. FAW and Beiqi-Foton are also developing their own engines in addition to sourcing from Weichai. Weichai’s majority-owned (51 percent) subsidiary Shaanxi Heavy-Duty Automobile has an alternative engine supplier, Xi’an-Cummins, a joint venture between Cummins and the truck maker’s other parent, Shaanxi Automobile Group.

Meantime, the transmission market shows similar trend as the engine segment, when heavy-duty truck makers make efforts to shake off their dependence on Fast Gear.

While Weichai is still enjoying its “Golden Supply Chain,” other top heavy-duty OEMs are actively moving into building similar chains for themselves in order to further lower cost and better respond to marked demands. The other challenge for Weichai is regional interest and politics involved in its relationship with the Shaanxi government and the Shaanxi Automobile Group which own 49 percent of Shaanxi Heavy-Duty Automobile, Fast Gear and Hande.

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