Automotive Refinish Market

By Christine Esposito | August 10, 2005

Paint plays a vital role in restoring a classic to its former glory or repairing the family SUV after an accident. But the repair industry faces major challenges ranging from increased competition to pricing pressures to new technology. Paint suppliers n

When a customer drops off his car at the local repair shop, he may not think about more than how much his insurance rates will rise and when the vehicle will be back on the road. But behind the scenes, there is a bevy of activity at the auto shop. Employment woes, increased competition, insurance company pressure and environmental regulations are changing the business landscape. Refinish specialists know that time is money, and despite these factors, the bottom line remains getting that car on the road again as soon as possible.

More than ever, paint suppliers are finding that they need to do more than sell and ship products to these customers. Paint manufacturers are actively playing a role in helping the repair industry find solutions to problems that go far beyond primers and topcoats.

"It's not just about selling paint anymore," said Darlene Eilenberger, manager, brand marketing, BASF Automotive Refinish (North America). Some of the major issues the industry is dealing with are stiffer VOC regulations, shop consolidation, reductions in volume, increased competition and pressures from insurance companies to reduce costs at the shop level.

That opinion was echoed by Joel C. Hart, vice president, automotive, at Valspar. "Market compression, consolidation, insurance changes and eroding margins are some of the problems facing the industry. More and more, a professionally run shop-whether it is a three-man shop or a mega collision center-has found it tougher to survive in today's refinish world."

Shop Talk
Of the issues affecting shop owners, one of the biggest concerns is hiring qualified personnel. This is an issue owners are dealing with on a daily basis, and paint companies are doing what they can to improve the situation.

"There are difficulties in finding and keeping trained technicians," said Keith Smith, market services manager, DuPont Performance Coatings. "It used to be a market of craftsmen, but now, in addition to being a craftsman, you need working knowledge of computers, mathematical skills, etc." (See side bar).

Autobody Shop Owners Face New Issues in Quest to Stay Afloat

Hazardous waste, qualified employees affect future of business

Facilitated by the stricter environmental laws of recent years, one of the most troubling issues in the autobody industry today is properly dealing with hazardous waste. According to Dan Risley, executive director of the Society of Collision Repair Specialists (SCRS), paint is one of the largest contributors to hazardous waste in body shops. "The problems vary from leaving paint containers open to improper disposal of unused paint (hazardous waste)," he said.

During the automobile refinishing process, a significant portion of paint is lost due to overspray and large amounts of solvents escape into the atmosphere. Reducing this "paint-sludge" and other volatile organic compounds (VOCs) that result from automotive painting operations has become a serious issue for body shops. Not only is paint waste harmful to the atmosphere, but it also poses a health risk for employees. Collision repair workers are subject to exposure to isocyanates, which can result in a condition known as isocyanate asthma.

The Automotive Service Association (ASA) is currently supporting a study conducted by the Yale University School of Medicine on isocyanate exposure in body shops. "The study has found that individuals in closest proximity to spraying experience the greatest exposure to isocyanates. Painters, for instance, have higher exposure levels than do office personnel. Skin contamination by task shows increased exposure when clear coating, priming, sanding (both wet and dry) and sealing," said Ken Roberts, vice president, communications, ASA.

The trouble for most body shops is finding an answer to these environmental problems. Possible preventative measures and solutions include the training of collision repair employees in regards to safety and chemical disposal, awareness of current laws/regulations on waste and the identification of reputable waste disposal vendors.

There is another issue the industry is facing. Like any other business, the need for reliable, trained employees is a must for success. The autobody industry, however, faces a shortage of quality employees.

"The entrance of quality technicians into the marketplace is going to continue to be a problem. A vast majority of the industry is already faced with this and it's going to take the efforts of the industry to correct it," said Mr. Risley.

In fact, when asked what the most important issue in his autobody shop was, owner Bill Calamaso of the Pine Brook, NJ Maaco shop, responded, "Finding and keeping quality help."

The answer to these employment woes, according to Mr. Risley and others, is quite simply education. "Technically, with the growing complexity and diversity of automobiles, repair professionals should participate in annual continuing education," said Mr. Roberts.

With the help of organizations such as ASA and SCRS, the autobody industry hopes to increase the number of certified employees. Each year ASA, its statewide affiliates and its local chapters sponsor hundreds of educational seminars that cover both managerial and technical subjects. ASA also offers events, such as the International Autobody Congress and Exposition, in hopes of spawning educational activity among its members.

In addition, all the major paint companies-including Dupont, PPG, Sherwin Williams, BASF and Akzo Nobel Resins-offer training geared toward their specific products. Training sessions often consist of knowing the right product for the job, the conditions it can be used in, drying times and recoat times. A large majority of the technicians in today's autobody industry have had some sort of training in the automotive paint process.

So what does the future hold for the autobody industry? The answer to that question appears to be one of mixed reviews. Currently, with the increasing cost of paint and materials, some shops are barely breaking even. To make matters worse, there is a concern in the industry that the number of repairable vehicles is decreasing due to increasing repair costs and the increasing number of vehicles considered totaled. However, if many shops invest in the proper equipment, increase the number of qualified employees, and operate environmentally friendly shops, there could be a bright light at the end of the tunnel for the collision repair industry.

"There is a tremendous future for collision repair professionals," said Mr. Roberts. "Those who take advantage of the training opportunities available to them today will be best positioned to reap the fruits of tomorrow."

Robert Schwarz

In addition, shop owners need skills outside of application techniques to successfully run their business. Coatings companies are becoming mentors of sorts, helping smaller shops with different aspects of running their business, including marketing and advertising and front office operations. According to industry insiders, in many cases this has become necessary because smaller shops are often started by a great painter, someone who is more capable with a spray gun than accounting procedures. In fact, some firms are taking a "back-to-school" approach when it comes to training refinish personnel.

BASF offers VisionPLUS University, a professional business management seminar. The company has added new courses (available in the fourth quarter) focused on electronic communication, professional business writing and high-impact presentations in addition to traditional shop productivity, end-user satisfaction and environmental issue-related forums, according to Jay Johnston, manager of training with BASF Automotive Refinish (North America).

Spray techniques are critical to the refinish process.
PPG has formed a partnership with Penn College (Pennsylvania College of Technology) in another education program focused on providing "premier educational opportunities for a global workforce." The first JV between the two will involve the PennSTAR training program, and will provide training to cover the state's Mobile Equipment Repair and Refinishing (MERR) standards, spray techniques, material and waste management, equipment cleaning, air quality regulations and record keeping. Training will be conducted at select PPG business development centers with PPG instructors in addition to Penn College's mobile training unit. Future plans include creating a curriculum using PPG training facilities and instructors that will allow students to obtain an associates degree from Penn College.

In addition to in-house training offered by paint suppliers, companies like BASF, PPG, Dupont, Martin Senour and Sherwin-Williams also team with industry associations including ICAR, ASA and UTI to help train the industry.

Technology Issues
Like every segment of the coatings market, stricter environmental issues continue to be a factor in product usage and development. In the refinish segment, VOCs and HAPs are major areas of contention both in North America and Europe.

"Increasing VOC regulations have been and will continue to be a major force acting on the industry," said Guy Bargnes, director of marketing, for BASF Automotive Refinish (North America). "The disparities in regional regulations contribute to the challenge of developing and distributing compliant products at competitive prices."

Brian Koevenig, lab manager, BASF Automotive Refinish (North America), added, "More areas will look to restrict or eliminate heavy metals, especially chromium."

In Europe, the move to greener products continues. "There is real push towards water-based technology in Europe," said Mr. Smith of Dupont. "We're preparing for the government-stated changeover date of 2007 by focusing on waterborne systems now."

Make It Quick
In addition to environmental issues, substrate changes and more sophisticated coatings technologies used at the OEM level are also shaping technology advancements in the refinish sector. "New substrates and raw materials will also help drive technology changes," said Mr. Hart of Valspar.

While waterborne paints and other low VOC technologies are needed in the marketplace, fast and consistent cycle times are key to many shop owners, especially in the U.S. market. Therefore, R&D development in the refinish market is centered on increasing productivity and speeding up the painting process so shop owners can get vehicles back on the road as quickly as possible.

"We want to help them eliminate bottlenecks and save time," said Mr. Smith.

"The most recent product launches by BASF have focused on reducing the cycle time that it takes to complete a paint job," said Mr. Koevenig. "We have launched a number of clearcoats that are designed to enable a painter to move the vehicle out of the spray booth more quickly, thus getting more vehicles painted, since the spray booth is one of the major bottlenecks in a body shop." Among some of the innovations in this area are BASF's Fast-Drying CTR (Cycle Time Reduction systems), 10 Minute clearcoats and the Small Damage Repair System, which enables painters to make repairs to small scratches without clearcoating the entire panel, another time-saver. "All of the introductions are meant to help the painter complete more vehicles, thus improving productivity and increasing profits," said Mr. Koevenig.

Other new time-saving launches include Sherwin-Williams' ULTRA 7000 CC930 Speed-Plus Performance clearcoat, Martin Senour's 8660 air-dry hardener and 860 short-hardener and Dupont Performance Coatings' Ultra Productive primer and sealer. In addition, UV technology and alternative methods, such as roller applied primers and aerosols, are also quickening the pace. With PPG's UV-Speed Prime, a single spot repair can be prepared and ready for topcoat in less than six minutes.

  As computer technology (like Dupont's VINdicator) becomes a necessity in helping shops more closely match colors, getting personnel up to speed is critical. Paint suppliers are playing a role in this education and training.
In 1992 BASF debuted the world's first waterborne basecoats for automotive refinishing, the Glasurit 90 line.  

Occasionally, speeding up the refinish process involves legwork before the paint is applied. DuPont's VINdicator works off a car's VIN number to determine the exact color of that model. The choices are narrowed according to plant statistics for the car on the day it rolled off the paint line at the manufacturing plant. By doing so, if a yellow was running on the dark side that day, the shop can quickly-and more accurately-select the color.

Matching the original color on a classic or vintage car can also be a difficult process. BASF has tried to make the task easier with its new Antique Color Chip CD. The CD contains digital images of more than 5,700 color chips of models from 1936 to 1972, including brands such as DeSoto, Edsel, Nash, Rambler, Pierce Arrow and Studebaker, as well as Chrysler, Dodge, Ford, Cadillac, Oldsmobile and others.

"We know how important authenticity is when you're restoring or repairing a classic car," said Paul Marshall, color lab technical manager, BASF Automotive Refinish. Most formulas are available in Glasurit, R-M and Limco 1-2-3-4 lines, and can be found using the company's SmartColor or SmartTrak electronic formula retrial systems.

Down the Road
Even with advancements in technologies, the health of the automotive refinish market is tied directly to the number of vehicles there are to repair. Industry insiders note that conditions vary in this estimated $5-6 billion market, depending on different regions of world.

In the U.S., the market has been hampered by a drop in the number of units to repair, safety advances such ABS brakes and third brake lights (resulting in fewer accidents), improved OEM coatings that last longer, and of course, improved refinish formulations such as higher solids that provide better coverage.

"The refinish volume continues to drop about two to three percent per year," said Ms. Eilenberger.

Mr. Hart of Valspar also noted softened demand. "Market conditions have been soft for the past two years and continue to shrink in volume due to product efficiency and repair techniques," he said.

Still, some observers contend 2002 will be better. "Sales were below expectations in 2001, however sales have rebounded strongly in 2002," said Mr. Smith of Dupont.

While improved refinish coating technologies in the U.S. and Europe spell mostly flat market conditions ahead, undeveloped areas such as Asia and India-where less sophisticated painting technologies and techniques are used-offer opportunities for higher volumes.

To this end, most major manufacturers have signed accords to expand their operations into these areas, placing themselves at the ready for growth. Among the latest moves are BASF's acquisition of the automotive refinish business of Wattyl (it had been in a JV with the company since 1999), and its distribution accord inked with P.T. Catur Warnaindah Sentosa. Through the latter deal, BASF will sell its R-M brand refinish paint in Indonesia.

Akzo Nobel signed deals to strengthen its refinish operations both on the R&D and distribution sides of the business. The company opened a new research center in Bangalore, India for refinish paint and also acquired Jouanne S.A., a French paint distributor.

Regardless of where the collision repair business is-Boston or Bangalore-or if its a "mom 'n pop" shop or major refinish chain, coatings suppliers remain focused on the bottom line: keeping them in business.

"The market is diverse and changing," said Mr. Hart of Valspar. "However, we believe that all shops have the potential to be successful and profitable."

Insurers Enter The Collision Repair Business
Another area of concern in the automotive collision repair business has been the blurring of the boundary between insurance company and repair shop.

"The line between insurer and repairer is becoming fuzzier," said Mr. Smith of Dupont.

For example, Interinsurance Exchange of the Automobile Club, an affiliate of the Automobile Club of Southern California, announced that it invested some $30 million in Caliber Collision Centers, a 62-shop chain in California and Texas. Later, Allstate Corporation--the insurance giant--acquired Sterling Collision Centers, Inc., a 39-shop repair company operating in seven U.S. states.

While Allstate considers its purchase to be part of its strategy to become a "multi-channel access provider" and make things easier for consumers, smaller, independent shop owners see the firm's entry as a way to cut them out of the loop-and ultimately put them out of business.

The Society of Collision Repair Specialists (SCRS), Tri-Cities, WA, opposes insurance company ownership. SCRS contends insurance company ownership of and investment in collision repair shops raises "Serious concerns regarding the consumer's right to freely select a collision repair facility, as well as the independent collision repairers ability to compete in a free and open marketplace."

Similarly, the California Autobody Association (CAA) is also working to fight insurance company ownership of collision repair shops. In the California Assembly, a bill was up for consideration, which proposed outlawing insurer -owned shops. The bill, which the insurance industry opposed, failed.

The relationship between insurer and shop owner hasn't always been copasetic. One area of friction has been the practice of paint capping--where insurers set arbitrary limits on what a shop charges for paint and materials.

According to SCRS, in a majority of cases, capping is standard practice, but not necessarily something a shop owner has to accept. SCRS contends that many insurance companies will consider paying for paint and materials "above their published threshold if the shop adequately documents their costs on a vehicle -by-vehicle basis."

SCRS is in the process of updating its paint cap-related material.


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