A Brief Analysis of the Current Situation of the Domestic Filter Industry

The Chinese automotive filter industry, commonly known as the "three filters" (oil filter, air filter, and air conditioning filter), has taken the lead in global scale after years of development.

Overview of the Filter market

The growth rate of air conditioning filters is opposite to the former two as the trend of automotive electrification and intelligence develops, and the growth will continue. Moreover, the application of new technologies, such as intelligent air filtration technology, will be further applied and popularized. Therefore, the global filter market will still grow in total volume in the future, but the growth rate will gradually slow down, and there will also be a gradual differentiation in growth rates at the product level. In China, there are currently approximately over a thousand domestic manufacturers of automotive filters. The sales scale of the entire industry and the scale of the surrounding industries driven by it are also very large.

The situation of the filter industry

The competition in the domestic filter industry has already reached a white-hot state. Of course, the fierce competition in the domestic auto parts manufacturing industry as a whole has become ubiquitous. So, the current situation of the filter industry is:

The first is the intense internal competition;

The second is that production exceeds sales.

Thirdly, due to the sharp increase in the penetration rate of new energy vehicles and technological advancements, their usage has gradually decreased, especially for oil filters and air filters.

The fourth is the unequal cooperation from the demand side, that is, the original equipment manufacturers (Oems) and the aftermarket enterprises, due to the continuous cost reduction and long settlement cycle requirements of filters.

The fifth factor is the continuous trade protection wars, fluctuations in the US dollar exchange rate, and the constant occurrence of geopolitical events, which have continuously affected the export business of domestic automotive filter enterprises.

Problems keep emerging, and we are seeking a way to transform

Under numerous unfavorable factors, domestic enterprises, especially those specializing in the production of passenger car filters, particularly those with smaller scales and relatively single business structures, will face many uncertainties in the competitive situation and survival space in the future. However, the development of these enterprises cannot stop.

As far as I know, many filter brands in the North American market are currently manufactured by Chinese filter enterprises. Of course, a considerable part of the income sources of these enterprises come from within the country. However, apart from the income generated from the business sources of its own brand, it mainly comes from the contract manufacturing business of other brands. For instance, foreign brands or the self-owned brands of major auto parts chain enterprises.

Overall, although the domestic filter industry is overcapacity, the market demand is still relatively well-matched. As long as the channel structure is reasonable and the business sources are diversified, generally speaking, the operation of domestic filter enterprises is still acceptable. However, compared with ten or twenty years ago, there will definitely be a gap. In addition, the domestic filter industry is also facing the predicament of difficulty in recruiting workers.

In my opinion, the filter industry belongs to a general technology-intensive and labor-intensive industry. In the early days, due to the relatively low labor cost and the fact that the recruitment and training of front-line production workers were not difficult. Therefore, like other domestic industries, the filter industry has grown rapidly by taking advantage of China's demographic dividend period. However, nowadays, as the advantage of the demographic dividend gradually fades away, the problems of difficulty in recruitment and employment have become increasingly serious.

With the state's intensified supervision over environmental protection and the continuous rise in labor costs and raw material prices, the operating profits of domestic filter enterprises have begun to decline year by year. For instance, the spraying of the casing of the oil filter, especially the oil filter, has always been carried out using the process of metallic paint spraying. Nowadays, due to environmental protection policies, many factories have switched to powder coating spraying processes and raw materials. The resulting increase in raw material costs is thus understandable. The problem is that the purchasing prices of the purchasers have been decreasing year by year.

The emergence of numerous problems has put forward higher requirements for the business decision-making capabilities of the bosses and founders of various filter enterprises. In fact, this is quite normal. When any industry reaches a certain stage of development, it is bound to encounter a bottleneck period. It is not terrifying to encounter a bottleneck period. The problem is that entrepreneurs have not found effective solutions, which is the most terrifying. Even so, it might be fatal.

In recent years, I have also witnessed the bosses of domestic filter enterprises making adjustments to their development strategies one after another:

Some operate their own brand chains of first and second-class consumable and vulnerable parts. Some have moved their production bases to the inland areas. Some have intensified their efforts to develop domestic channel customers; Some still adhere to the strategy of going global with auto parts. Some develop new businesses.