Automotive Coatings

By Andy Teng | August 10, 2005

In a difficult market, coatings suppliers can reap rewards

At a time when high unemployment, a faltering stock market and war concerns are hampering U.S. and world economic recovery, auto sales have surprisingly held up in an otherwise dismal economy. With consumers lured into showrooms by huge rebates and low financing, some might expect to find automotive paint makers comfortably enjoying the brisk sales of their customers.

But it's because of these incentives, along with other changing practices, that paint suppliers are finding the automotive coatings market increasingly difficult to navigate. With their margins under pressure, carmakers are not only looking at ways to reduce raw material costs, they're also asking suppliers to work harder to help cut overall production costs. Following a trend of increasing vendor input, coatings manufacturers must formulate the best-performing product at the lowest costs and figure out the most efficient methods for applying the coating. And if that's not enough, as automakers become more global, they expect vendors to supply products that are consistent regardless if the assembly plant is in Mexico or Michigan. With many U.S. autos now built overseas or in Mexico or Canada, suppliers must have production capabilities in key markets around the world.

At the same time, coatings manufacturers who successfully juggle these requirements stand to reap rewards through longer contracts that cover numerous plants in many regions. Higher volume will certainly offset sagging margins and the growing list of customer demands. Coatings manufacturers know the payoffs are there as long as they are willing to work for it.

"All suppliers to the automotive industry are being asked to do more when it comes to R&D and new manufacturing process support," said Shawn Jeffers, paint materials engineer for DaimlerChrysler. She said that car makers have always looked to their coatings suppliers for help, but now they have to step up even more in developing new technologies and enhancing existing ones as well.

Unquestionably, all automotive OEM suppliers are under pressure. Following stellar years in 2000 and 2001, sales of cars and light trucks are expected to decline to 16.4 million this year from 16.8 million last year, according to market research firm J.D. Power. In the face of falling sales and with large incentives doled out to customers hurting the bottom line, Detroit's focus on price reduction has never been more intense as the industry struggles to maintain profitability.

Coatings manufacturers will have to help shoulder some of the burden in spite of weak growth ahead. According to the

CHEMARK Consulting Group, 2002 sales of OEM auto topcoats in North America totaled $2.32 billion (490 million pounds). Interior coatings accounted for another $300 million (110 million pounds). At current auto production levels, exterior paint growth is 1.5%, according to the firm, and the interior coating sales increase is a mere 0.9%.

What will be the effect on coatings suppliers? For one, holding prices stable will be the top requirement. Pricing increases will be extremely difficult to pass on in the near future. Improving transfer efficiencies remains a goal, but it's likely that auto makers will demand new and improved application systems. To do this, they will look to coatings manufacturers to help design and, in some instances, run plants. Moreover, all suppliers will work more closely to achieve their ultimate goal: save customers money and raise profits.

Suppliers are playing an increasingly important role in the auto industry, according to Forbes Magazine, which reports that 70% of production costs are the responsibility of suppliers. By outsourcing more, automakers are hoping to raise margins through operations and labor savings. Even interior assemblies are now being farmed out. Last month, GM announced that it would hand over design and production of the interior of two models-the first time that the auto giant has entrusted a supplier to produce the interior of its car. If current trends continue, the magazine reported, engines and transmissions could be the next components to be built by outsiders.

That means coatings manufacturers one day might not sell to automakers at all; instead, it might be a tier-one supplier they must cozy up to. Or possibly, the coatings manufacturer might be the key vendor in charge of all fluids used at the plant. In any case, customer service and relationships are sure to change in the future.

A painted body being processed through a bake booth.
Photo courtesy of DaimlerChrysler
What's also likely to change is how coatings
manufacturers sell and produce products. With continued globalization of the industry, suppliers no longer provide products to local manufacturers. Products must meet requirements in a number of markets, and no where are the regulations more stringent than in Europe. For instance, the European Union last year put into effect a directive for car makers to pay for the recycling of old cars. While countries of the EU are still sorting out the details of the legislation, the directive has made auto manufacturers and their suppliers much more mindful of end-of-life requirements.

Rose Ryntz, senior manager for the advanced materials engineering department at Visteon, the auto parts supplier spun off from Ford, said greater awareness about international environmental and regulatory issues is one result of the market shift. International legislation raises many questions. What will be the requirements for paint removal on old auto parts as a result of the EU directive? What HAPs are prohibited from coatings in cars sold, say, in France? What are the implications down the road for a higher pigment load in a coating sold overseas? For certain, international rules are muddying domestic manufacturing practices.

"When I look at what some of the restrictions are, I see we have to be more of a full-service supplier. How do we take that (part) back and how do I reuse it. That also adds costs," said Ms. Ryntz, a member of the editorial review board and publications committee for the Federation of Societies for Coatings Technology.

Another European initiative is the international material data system, which originated from Germany. Many automakers now require suppliers provide materials data with products sold in EU markets. Under this system, every component, subcomponent and semicomponent must be reported. Ms. Ryntz said that all automakers have adopted the system.

Foreign Investments
Keeping up with automotive customers' investments in overseas markets is no small task. Areas such as Southeast Asia, China and Eastern Euope hold potential for future growth, and many car manufacturers are investing considerable amounts in those regions. With each new plant opening, coatings suppliers will be asked to make similar investments. Only those with deep pockets and patience will be able to benefit from overseas growth.

DuPont at the end of last year acquired 100% ownership of its Renner DuPont joint venture in Brazil. The unit produces automotive coatings for the South American market. In addition, the company is making a greater push into Asia. Marty McQuade, vice president, Americas, DuPont Herberts Automotive Systems, said the company's foreign investments are a reflection of the times.

"The impact on DuPont and coating suppliers in general, we recognize, is the need to globalize or extend our global reach," Mr. McQuade said. "This is a global market; you see that as an evolution."

Mr. McQuade and his counterparts at other automotive coatings companies say they need to deliver the same quality at any one of a customer's plants throughout the world. This requires coating manufacturers to implement a high degree of discipline in their plants, good internal communications and a consistent supply chain.

"As we have watched the world get smaller as a result of travel and communication, coatings must also exhibit the same qualities everywhere," noted Jon Hall, manager of OEM color development at BASF Corp.

Mr. Hall said the most important consideration for international customers is product consistency. To meet these and other requirements, BASF is looking to new service systems. He said that coating suppliers need to investigate tools that will help them improve product development, speed analysis and change quality management. Pointing out that while coatings chemistry has constantly evolved, applications processes haven't kept pace. He said there are many new hardware and software packages that will "deliver the color and quality needed without more service."

Working on Quality
Whether the demand is from an overseas customer or a domestic buyer, better performance is a constant objective. Although carmakers have few complaints about today's coatings technology, they also want incremental advances. Greater mar and scratch resistance, higher gloss and UV protection, film thickness reduction and better film flexibility are all on the wish list. Of course high transfer efficiencies are a must because first-run success is key to cost savings. If a vehicle requires additional handling and application, it slows the whole process.

The goal is "to get as much of our products on the vehicle as efficiently as possible. High transfer efficiency... means lower cost to them (car makers) and it also means they are able to utilize their facilities to their maximum advantage," said Dennis Taljan, director of decorative products and technology at PPG Industries.

To achieve high efficiency, coatings manufacturers have to consider many factors, such as line speed, product shape, application equipment and cure requirements, he pointed out. In some cases, coatings manufacturers have to work with a half dozen equipment vendors to optimize the system. In addition, each one of an automaker's facilities will likely have different equipment. Some may be state-of-the art and others may be legacy units. Further complicating the process is that a single plant may produce several models.

After the coating is applied, auto makers want to make sure it stays on to meet today's longer warranties. That's why the demand for higher mar and scratch resistance is a moving target. Pushing the performance envelope, PPG in January introduced CeramiClear clearcoat, which the company touts as so durable that it had to integrate more rigorous testing methods to assess its performance. The product uses what the company described as a patented nanotechnology to raise resistance to acid etch, mar and scratch. The company claims that over time cars painted with CeramiClear, which are compatible with water-based basecoat and primers and e-coat layers, will appear newer than conventionally coated vehicles.

Along with improving application efficiency and product performance, coatings manufacturer are also helping to reduce film thickness. However, two critical questions need to be addressed: as film thickness diminishes, can changes in formulation achieve the same performance without significant raw material cost increases and will a thinner film provide the same appearance as a thicker one?

Mark Lutterbach, vice president of research for Red Spot, a supplier of paint and primers for trim parts, said even if similar properties can be achieved through a significantly thinner film, there is a practical limitation. As film thickness drops from 2 mil to 1.5 and lower, he said designers will likely reject the appearance; a much thinner film simply can't provide the same rich appearance.

"Unless design people change their expectations for color depth, I don't think it's going to matter. Design is still responsible for creating parts and techniques acceptable to the consumer," he added.

While automotive coatings consumption probably won't drop much from a reduction in film weight, there is concern about the long-term effect of in-mold trim parts used in product design. If cars and trucks begin to use more color trim parts that aren't painted, would coatings manufacturers see their businesses suffer?

According to CHEMARK, in-mold color parts account for approximately 1.5% of the assembly. The firm predicts the ratio will grow to 4% to 5% over the next several years, but will this mean a proportionate decline in paint consumption? Not likely, several paint manufacturers said. Even though the use of decorative molding is increasing, a majority of them are painted to match the color of the body. In-mold colors are never an exact match to the painted parts, so automakers have largely shied away from unfinished parts, preferring to paint them instead.

How High Can You Go?
DuPont envisions super-high solids coatings reaching solid contents of more than 80% in the near future, giving auto makers an alternative to other low-VOC technologies.

The Green Scene
The move to more environmentally friendly coatings will likely accelerate next year. As part of the Clean Air Act, the U.S. Environmental Protection Agency in February is expected to publish a final rule regulating emissions from automobile coatings facilities. Under the rule, which falls under the Maximum Achievable Control Technology (MACT) standards, plants will have three years from the publication date to comply with the standards, which limit the amount of volatile organic compounds and hazardous air pollutants released.

When the rules go into effect, automakers will have to make some tough decisions: adopt more high or super-high solids coatings or switch to waterborne; invest in costly capture equipment; or retrofit for powder coatings or possibly UV technology. In any event, coatings suppliers will play an integral role in the decision making.

When it comes to super-high solids technology, DuPont executives insist the only ceiling is 100% solids. Last year the company introduced a 65% solids clear coat, which is significantly higher than the industry standard of 50%. The technology, which was first implemented at DaimlerChrysler's Newark, DE plant, uses smaller particles so the coating "behaves more like a liquid," according to the company. Mr. McQuade said in the near future the super-high solids may reach more than 80% solids contents. For plants looking to reduce emissions, it will be an attractive alternative to powder coatings because super-high solids work with existing equipment.

With conventional technology making incremental strides, the benefits of UV-cured coatings may lose some of its luster. Although it boasts emissions benefits, UV is also costly and fraught with technical problems. Line-of-sight issues haven't been resolved, capital equipment is expensive and very little of the overall assembly is now UV cured. Many coatings manufacturers see UV as a niche application more suitable for curing coatings on lamp assemblies, for instance, but certainly not the exterior fascia.

Silver remains the most popular color three years running.
Photo courtesy of GM.

Shifting Palette
When automotive coatings manufacturers aren't focusing on product performance or application efficiency, they're developing new colors and effects. After all, it's really the color that sells the consumers.

Although silver remains the most popular color worldwide-accounting for 35% of the volume in 2002, according to PPG-special effect and pearlescent colors are grabbing more attention these days. Considered a novelty from a volume standpoint, color-shifting coatings were a hot topic at this year's Detroit Auto Show in January. PPG said the next few years will bring vehicles with subtler shifting colors as well as a "liquid metal" appearance. Additionally, pearlescent pastels and earth tones will be found on more cars in the near future.

DuPont said silver will likely be very popular for a few more years because color trends tend to last seven years. Blue, which is the only true chromatic hue among the top three colors sold, might move up in the rankings.

With forecasts calling for the automotive industry to shift into a lower gear this year, coatings manufacturers must be ready for more demands from their customers. For certain they will be asked to hold prices stable, shoulder more R&D and production responsibilities, improve transfer efficiencies and upgrade product performance. For coatings manufacturers who can meet all of these demands while preserving margins, the color trend predicted for them will be strictly be green.

Related Market & Technology: