Although China's production costs have been rising in recent years, American Axle & Manufacturing, Inc. is still interested in expanding its Spare Parts purchases in China.
Steven Proctor, the company's Asia operations president, said: "From the perspective of the powertrain products, China is still an ideal low-cost production area."
Proctor said that about 8% of the spare parts used by Axle in North America are produced in China.
He said that this Detroit-based company is developing new Chinese suppliers. Proctor declined to give specific growth targets for the proportion of parts purchased in China.
In recent years, the rising costs of China have caused the advantages of transporting auto parts from China to North America to recede.
Since the yuan-dollar-linked exchange rate policy was removed in 2005, the renminbi has appreciated by about 20%. In other words, the number of dollars needed to purchase equivalent Chinese-made components has increased.
Last year, China eliminated the sales tax rebate on thousands of export products. In January this year, the newly introduced labor law provisions in the country ensured that the laborers’ employment contracts, social security contributions, and overtime wages were all guaranteed.
China’s wages are also rising. Before the introduction of the new labor law, wages for workers in coastal provinces increased by about 8% each year in the past three years.
However, for the United States Axle Company, Proctor said that production in China is still competitive. He said that the biggest attraction is that China still has a lower labor cost.
Proctor said: "Considering the global recession, it is difficult to determine the extent to which wage increases and currency appreciation will continue."
Take a gear cutter operator as an example. Proctor said that in Mexico, the hourly wage for this type of work is 4 to 5 US dollars (27 to 34 yuan), including benefits.
In the case of a new joint venture between Anhui Axle and Anhui Jianghuai Automobile Company in Anhui, the hourly rate for the same type of work including benefits is only US$1.50 to US$1.70 (RMB10 to RMB12).
Proctor said that even if organized labor made concessions in the near future, the hourly wages of a union worker in Michigan in the United States were still as high as 35 to 40 US dollars (240 to 274 yuan).
The American Axle Company specializes in the production of driveline components and metallic gear systems, driveshafts and support shafts. These parts are produced through labor-intensive casting and machining.
Proctor said: "For the products we produce, the cost structure of China's manufacturing industry is no longer appropriate."
It is important that the Axle Company does not intend to expand the export volume of any of its factories in China.
In the United States, parts purchased from China are likely to be produced by sub-contractors of the American Axle Company in China.
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