Expert's Opinion

Rebounding (...or Reeling?) from the Recession

May 25, 2010

Cynthia Niekamp of PPG Industries offers the latest on the automotive coatings market.

What are the latest trends when it comes to market dynamics shaping the automotive coatings industry in the U.S.?

The U.S. automotive coatings market is being impacted by a number of factors, both short-term and long-term. Short-term, auto OEM production is increasing from a very depressed level in 2009, which is a positive sign. Medium- and long-term trends include environmental regulations and continued cost pressures, which both drive the need for new innovations.

Fuel economy regulations are getting tougher for the OEMs to meet. The CAFÉ standard has been raised for model year 2016 to an average of 35.5 MPG, a 30% increase from 2011. These new rules are driving the OEMs to look for weight savings, powertrain efficiencies and efficiency gains throughout the vehicle and the production process.

Cost pressure is also a constant factor in the automotive coatings market. We are intimately involved in the painting process of vehicles. PPG personnel work full time at our customers’ paint shops to help ensure a high quality process in a demanding environment that meets or exceeds consumers’ expectations. PPG supplies products and processes that reduce the overall cost of coating the vehicle. Our goal is to help the OEM produce a high quality vehicle at minimum cost.

As I mentioned, 2009 was an extremely challenging year for the North American automotive coatings industry. Vehicle production fell to 8.5MM units in 2009 down -32% from 2008 levels. This has forced coatings suppliers to rationalize their manufacturing and technical footprint, and general overheads. Suppliers and OEM’s had to look at all processes for optimization, everything from R&D of new products to raw materials, manufacturing and delivery. The good news is that we are seeing good volume trends for 2010. The latest forecasts for U.S. vehicle builds are calling for production volumes to increase +35% in 2010 vs. 2009 to 11.6MM vehicles.

What are the latest trends when it comes to automotive coating processes and technologies?

Cost, government regulations and sustainability are three market trends that are driving new coatings processes and product technologies. Cost to manufacture is one of the key drivers for vehicle makers today. In their quest to find low cost alternatives to standard technologies, coatings suppliers, including PPG, have developed compact processes, which utilize advanced coating technologies, allowing the reduction of paint processes or layers to coat the vehicle. This results in the OEM saving material (weight), process steps, energy and cycle time.

One example of a compact process can be seen in the paint shop where the primer layer and its bake oven have been eliminated to save material and energy. Environmental regulations like the newly increased CAFÉ law as well as more stringent emission targets are driving coatings performance changes. Automotive systems are being targeted for weight savings in order to improve vehicles CAFÉ targets, and also to assist electric vehicles in self-sufficiency.

This trend opens the way to new lightweighting technologies, which in one case can be exemplified by a high throw electrocoat primer that reduces the amount of coatings applied to a vehicle. Another example is a new high performance liquid acoustic damper, PPG’s Audioguard Acoustic Coating, which can replace bulky and heavy parts with less weight at equal or improved performance.

What are the latest trends in raw materials for automotive coatings?

One of the most significant challenges facing the automotive coatings supply base today is the stability of the raw material supply base. With the economic downturn, traditional suppliers have undergone significant rationalization of their capacity, infrastructure and product lines. This presents a challenge now that vehicle production volumes have ramped up, increasing the risk of supply disruptions.

At the same time, certain commodity raw materials suppliers have been coming to the coatings industry for price increases, pressuring margins to an unsustainable level. Mitigation of these raw material price increases will be important, along with the ability to pass through increasing pricing (or indexing agreements) to OEM customers.

Rationalization efforts at raw materials suppliers might have also affected the development of new, more cost effective materials at the same time that regulatory material characterization requirements are increasing. A growing number of raw materials are subject to new governmental registration and threshold requirements, resulting in further erosion of the supply base, increase in costs, and/or customer initiatives to eliminate these raw materials.

Further aggravating the issue is the diversity of regulatory requirements being developed across regions and countries. This results in a greater resource commitment on the part of PPG, detracting from our core mission on innovating coatings technologies. Of greatest value to PPG are suppliers with stable supply capabilities and internal infrastructure to prevent both supply and technical disruptions to raw material availability.

How has the automotive coatings market been impacted by the recession?

The global recession has impacted the automotive coatings supply chain in several ways. The sudden reduction in demand for North American and European vehicles in 2009 caused the entire supply chain to rationalize its capacity. Now that the market has started to rebound, the supply chain has begun to be under more stress. The reduction in raw material capacity and the inflationary environment has impacted OEMs and their Tier One suppliers. Raw material shortages and supply constraints are impacting Tier One suppliers ability to supply certain products to the OEMs in a timely fashion. Raw material price inflation impacts the Tier One supplier’s ability to be a sustainable business. Price indexing agreements with OEMs is one solution that PPG is pursuing as a response to this situation.

Where do you think more R&D is needed to improve the performance of automotive coatings?

There are many areas where R&D can be of benefit. The first links to the topic of supply mentioned above. Investment in raw materials that will exist outside or co-exist effectively with the broad global regulatory landscape is a primary area of need. Investigations into low energy cure, adhesion to lightweight engineered substrates, management of steel and aluminum surfaces, management of water chemistry, reduction in water demand, and the effective management of surface energy characteristics at coatings boundary layers are all prime areas for focus. A final area would be in the development of sealer technologies that align with vehicle coatings technologies more completely.

Moving forward, automotive coatings will continue to be developed that improve performance, weight and cost. High performance coatings, which meet multiple requirements that used to be handled by separate coating layers, will see growth in the future.

How does PPG define sustainability?

Sustainability is continuing to meet environmental, economic and social objectives. So, what is PPG’s approach to sustainability? For us, it has two elements. Sustainability is first and foremost about being a successful business. We are in business to ensure the success and lasting presence of our company for the benefit of our customers, our suppliers, our shareholders, our employees and our communities. But, we also act in a way that not coincidentally helps to ensure the life and resilience of our economies, our environment and our society.

PPG has developed innovative products that help the industry to become more sustainable. Two of many examples of PPG’s innovative products that support our sustainability efforts include Green Logic Detactifier and Zircobond pretreatment. PPG’s Green Logic paint detackifier is derived from crab, lobster and shrimp shells, which are natural waste products of food production, not the petroleum-based products of traditional paint detackifiers. Green Logic paint detackifier has won several industry awards including an Automotive News PACE Award and an R&D Magazine R&D 100 award.

PPG has also developed Zircobond pretreatment, an environmentally friendly metal surface finish that adds value through improving appearance, paint adhesion and the overall corrosion protection of the vehicle. Zircobond pretreatment is formulated without regulated heavy metals, and a process using Zircobond pretreatment generates at least 80% less sludge byproduct than a standard pretreatment process. Zircobond pretreatment was named as a finalist for a 2009 Automotive News PACE Award and was also recognized by R&D Magazine as one of the 100 most technologically significant innovations of the year in 2008.

What have been the greatest improvements in automotive coatings history until now?

The introduction of cationic electrocoat primers created a huge step change in the corrosion resistance of automotive vehicle bodies. Think back to the early 1970s and how common it was to see red rust on your vehicle after just several years on the road. Now some carmakers are able to offer 10-year warranties on corrosion performance. PPG’s introduction of this Enviroprime electrocoat technology in the late 70s and the continuous implementation of next generation products have made significant improvements to the corrosion resistance of vehicles today.

Also of note is the introduction of basecoat/clearcoat coating technologies. This coating system in which a color layer (basecoat) is applied and then followed by a clear layer (clearcoat) opens the door to a new level of color, durability and appearance. The clearcoat imparts the high gloss, depth and richness of the coatings. The new basecoats allowed advancement in the color layer with the addition of micas and aluminum pigments, to provide spectacular appearance. Today’s vehicle finishes are certainly differentiated from the basic colors available on the Model T.

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