China's mushrooming car parts industry is muscling its way into the long-secure US$19 billion per year components trade between Canada and the United States, using low-cost factories in Shandong province to drive down prices and wrest market share away from local suppliers. According to the Asia Pacific Foundation of Canada (APFC), Chinese vehicle parts exports to Canada skyrocketed almost 40 per cent last year, cutting the country's trade surplus with China in half. 'China's ambitions in the auto-parts sector are very real,' explains John Wiebe, president and chief executive of APFC. The Chinese government has targeted US$70 billion to US$100 billion in car parts exports by 2010. Achieving that goal would mean certain death for hundreds of rival manufacturers not only in Canada, but also in the US, Britain, Germany and France - and even relatively low-cost locations such as Mexico and Brazil. Chinese component makers already export nearly as much as their South Korean competitors, warns the APFC, and have made significant inroads into the key US market, to which Canadian suppliers sold US$19 billion worth of vehicle components last year. Mr Wiebe observes that the more than 200 parts makers in Shandong province, China's car parts manufacturing hub, have achieved a strategic presence in 'the sourcing chains of auto industry leaders like Toyota, Nissan and Volkswagen'. That puts them on a collision course with Canadian car parts firms such as Magna, the country's largest, with annual sales of more than US$20 billion, which plans to double its business with Japanese carmakers from the present 6 per cent within two years. Magna chairman Frank Stronach, who built the component powerhouse from a Toronto garage, warns that the Chinese onslaught is happening just as American and European carmakers - his biggest customers - face uncertainty and permanent job losses as American consumers increasingly opt for Japanese and Korean cars over models from General Motors (GM), Ford Motor and DaimlerChrysler. The Big Three vehicle makers in Detroit, all of which plan to slash costs and move more production offshore, accounted for 61 per cent of Magna's sales last year. GM reported its worst performance in 13 years in the first quarter of this year, prompting a flurry of urgent, unpleasant negotiations with its parts suppliers. Three major US suppliers have filed for bankruptcy protection so far this year. 'We are in the throes of a restructuring of the entire US auto manufacturing industry and its supplier base,' said Sean Egan, managing director at independent credit ratings company Egan-Jones. 'The centre of gravity is moving outside the United States.' Canada's vehicle parts industry employs more than 100,000 people and ships US$30 billion worth of parts each year, making it one of the pillars of the country's export-oriented economy. About 85 per cent of all Canadian exports are sold to the US. US car parts imports from China have shot up to US$2.8 billion, from just US$1 billion five years ago. Cheap Chinese components are exerting a brutal downward price pressure. Since 1997, Chinese imports have pushed down the average price of glass windshields in North America by 33 per cent, according to Jayson Myers, chief economist at the Canadian Manufacturers and Exporters Association. An APFC study shows that 71 per cent of Canadian car parts producers 'have had major customers threaten to switch to overseas suppliers', citing the immense pressure from carmakers to match Chinese prices. 'Many Canadian companies are reporting a loss of business as their US customers move offshore,' Mr Myers confirmed. Leading the attack on the North American market is China's largest maker of vehicle parts, Wanxiang Group. The company, China's third largest privately owned firm, has invested in several US companies, including Universal Automotive Industries. Wanxiang Group bought a controlling share in 2000, when Universal was teetering on the brink of insolvency. When Universal finally declared bankruptcy last month, Wanxiang was there to pick the carcass clean. Canada is particularly exposed to the eastward shift in the global car parts business because its suppliers have largely failed to secure a foothold in China and other Asian car manufacturing hubs. Less than 2 per cent of Canada's vehicle parts exports went to Asia, a recent survey by the Canadian Auto Parts Manufacturers Association (APMA) revealed. It may be too late to turn the tide. While Canada's car parts producers are focusing their marketing efforts on the US, the world's carmakers have pumped billions of dollars into China. In the first six months of last year alone, they announced US$14.7 billion worth of new assembly investments in the country. But amid a vicious price war and stalling sales, the big players are cutting costs by switching to local Chinese suppliers. Last weekend, for example, Germany's Volkswagen, clinging to an eroding lead in China's passenger car market, announced an emergency 'survival plan' for its joint venture with First Auto Works in Changchun. At the heart of the new strategy is a massive 2.8 billion yuan cut in expenditure on parts and components - which account for 70 per cent to 80 per cent of the cost of each car - through an urgent localisation programme. Volkswagen plans to swiftly raise local content to 80 per cent from 60 per cent. Despite the US$19 billion in exports to the US last year, APMA president Gerald Fedchun sees Canada's car parts sector at 'breaking point'.