Automotive Coatings Market

By Christine Esposito | August 11, 2005

The allure of Asia continues to affect company actions.

If there's anything that gets carmakers' engines revving, it's Asia. Automobile manufacturers continue to start up sales and production operations throughout the region, as they seek new roads to increased revenue. Their endeavors have meant more opportunities for paint suppliers, and major coatings manufacturers have already shifted into high gear with their own Asia-Pacific plans, hoping to gather their own share of the bounty.

"Paralleling the rationale of the domestic auto OEM, coatings and other key suppliers view the developed domestic markets as saturated and their products commoditized, thus pressuring margins," said Phil Phillips, founding partner of Chemark Consulting. "The Asia-Pacific region offers these suppliers the opportunity to reposition in a new region and have a perceived greater control of their destinies."

Rewarding Endeavors
Leading automakers are experiencing tremendous growth in various parts of Asia, and most are banking on continued, although somewhat tempered, growth going forward.

Ford Motor Company's Asia-Pacific and Africa region finished 2004 with an 18% increase in sales (on top of an equal increase in 2003), bolstered by year-over-year increases in 10 of 12 markets. GM said its initial 2005 first quarter production estimate for Asia-Pacific is 337,000 vehicles, compared to 296,000 vehicles built in the same period last year. And in January 2005 alone, Honda's Asian production rose 32.2% over January 2004 figures.

India remains one of the hottest areas, with light vehicle production expected to hit 1.3 million units this year, according to CSM Worldwide. To tap into this growing market, Honda's production and sales subsidiary in India-Honda Siel Cars India Ltd.-will raise its annual production capacity through a $30 million expansion plan that includes new paint equipment.

But far and away, the market that has been the biggest magnet for activity is China. According to CSM, China's vehicle production is expected to hit 4.5 million units this year and 5.4 million units in 2006.

Ford, which sells the Maverick, Mondeo, Fiesta and Transit vehicles in China, posted sales growth of a whopping 119% to 56,411 vehicles in 2004. China has also been good to VW Group, which was one of the first foreign companies to form JVs in the country. Although VW's sales slid a bit in 2004, down 6.3%, it delivered 757,000 vehicles, maintaining a strong hold on the market.

A Cadillac CTS is parked along Juyong Pass, a section of the Great Wall north of Beijing. General Motors, which launched sales of the Cadillac brand in China last year, said it will invest $3 billion in China over the next three years. Photo courtesy of GM.

More Choice, More Competition
One reason for VW's decline may be increased competition, as automakers continue to come to Asia for growth. With this, there's been change brewing in the vehicles being offered to consumers. The Asian marketplace is now seeing introductions ranging from truly high-end luxury cars to the soccer-mom favorite minivan, as North American and European automakers join forces with local companies.

"In all, there are well over 100 different automakers producing motor vehicles in China. The vast majority are local producers and the largest of those have teamed up with Western and Japanese companies," said Phillips.

DaimlerChrysler hosted back-to-back openings of Maybach Centers in Beijing and Shanghai in the fourth quarter of 2004, and the company plans to open a third center in Guangzhou for this super premium luxury brand. Through an accord with China Motor Corporation in Taiwan, the automaker said it will manufacture Chrysler Town & Country minivans in Taiwan in 2006.

"Establishing a manufacturing presence in Taiwan is part of our growth strategy for Asia, and we believe there is tremendous potential there for brands of the Chrysler Group moving forward," Dieter Zetsche, Chrysler Group president and CEO, said at the North American International Auto Show in Detroit in January.

General Motors, which operates joint ventures in China with Shanghai Automotive Industry Corp. Group (SAIC) and has relocated its Asia-Pacific regional headquarters from Singapore to Shanghai, recently introduced the quintessentially American Cadillac brand in China. The CTS luxury sedan and Cadillac SRX sport utility made their debut last year, and the Cadillac XLR will come to market sometime in 2005. All three models are being imported from North America; however, GM said it plans to assemble the CTS and SRX at Shanghai GM, making the SAIC the only facility outside the U.S. to produce Cadillacs.

"Having a strong presence in this dynamic and growing market is not an option anymore, it's a necessity," said GM chairman and CEO Rick Wagoner. The company is backing those words, as it will invest $3 billion in China over the next three years.

With market entry in Asia a must for most, if not all, automakers, consumers are benefiting. More than 65 new models debuted in China in 2003 and 2004, offering shoppers the widest selection the marketplace has ever seen. Yet, as a result, automakers are facing something new in the Asian market-increased pricing pressure. And, according to industry observers, price reductions are occurring at a more rapid pace.

Most contend the Asian market will continue to expand as foreign makers come to the region, lured by massive populations and economical production options. Yet there are some questions about the sustainability of the high growth levels being recorded in some markets.

Although China offers a population of more than one billion people, the vast majority live in rural areas and have annual incomes of less than $1,000. And only about 12% of those who live in urban areas can afford to buy a new car, according to one analyst who spoke at a GlobalAutoIndustry.com Chinese seminar held in Michigan in January.

In fact, there has been a sales slowdown in the Chinese car market since May 2004. "There are several major reason for the slowdown, including economy adjustments and tighter loan controls," said Yale Shang, director of emerging market vehicle forecasts at CSM-Shanghai, part of CSM Worldwide.

Still, CSM is optimistic about China's prospects for the coming years, forecasting 10% growth in light vehicle sales in 2005 and 2006, if the economy holds pace. That kind of growth is more than welcomed by automakers, which are also looking to the region as a more economical supply base.

"Car makers believe they can use these regions to supply adjacent regions economically, offsetting any shortfall in the producing region," said Phillips.

That's just what VW appears to be doing in Malaysia. In September, VW inked a deal with Proton Holdings Berhad. VW, which wants to launch the first VW models assembled in Malaysia into the local market by the end of next year, has set an initial 2006 sales target of 15,000 units. Company officials said VW wants to build up an automobile industry of "global market standard" in Malaysia, exporting to other countries in the region as well as supplying the local market.

With leading automakers expanding throughout the region, there's no doubt how vital it is for suppliers to follow. But coatings manufacturers are now seeing that in addition to providing ample supply locally, they must deliver more modern technologies as well.

"Growth of vehicle production in Asia (and Eastern Europe) has required investment in new facilities and capabilities to serve this expanded production with world class technology," said Marty McQuade, vice president and general manager of DuPont Automotive Systems, a unit of DuPont Performance Coatings. "World class technology demands development of coatings that offer both environmental improvement and application efficiency for higher productivity."

Along those lines, DuPont is building a $10 million laboratory in Japan to facilitate technical approvals for automotive coatings used by Japanese auto manufacturers worldwide, and to support their home country assembly operations. The new facility, in Aichi Prefecture, will be operated by DuPont Shinto Automotive Systems, a joint venture with Shinto Paint Company. It is scheduled to open in the third quarter.

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North American and European Markets
Asia is garnering the most of the headlines, but North America and Europe offer their own challenges and rewards. Although producers are rationalizing production capacity, hard work now will allow paint makers to deliver greater efficiencies and better products down the road.

"The traditional 'Big 3' auto companies in North America are consolidating capacity, though they are modernizing the remaining assembly plants and paint lines, especially as they seek greater flexibility to produce more models off of a given vehicle architecture. These newer facilities improve our capability of offering higher levels of technology with better quality and greater productivity benefits for our customers," said McQuade.

Recently, Chrysler announced a $419 million investment in the company's Belvidere, IL assembly plant, which makes the Dodge Neon for North America and the Chrysler Neon for international markets. Chrysler said it will make technology upgrades to increase efficiency and quality in the paint shop.

U.S. automakers aren't alone in their efforts to make paint shops more proficient. "Asian and European auto makers have invested heavily in building or modernizing auto assembly paint lines in the U.S. and Europe and plan to continue to expand capacity using the latest coatings technologies," McQuade added.

BMW is pouring 500 million into its plant in Regensburg, Germany, including a 250 million investment in the paint shop to make its coating and sealing endeavors more precise.

Based on the investment strategies stemming from mature markets in North America and Europe and increasing competition in Asia, PPG is looking to its recently formed alliance with Kansai Paint, to deliver results to global OEMs.

"PPG Kansai Automotive Finishes (PKAF) should usher in a new era for the automotive coatings industry," said Rich Rurak, president, PPG Kansai Automotive Finishes, which was established in the fourth quarter of 2004.

"With a typical paint shop accounting for approximately one-third of the cost of a traditional automotive assembly plant and taking a large percentage of the cost to build a vehicle, the opportunities to lower cost, improve quality, bring exciting color and appearance along with improved durability to the final customer, the car buyer, this alliance should be interesting to watch," Rurak added.

But even as coatings manufacturers look to benefit from bright prospects in emerging markets and new alliances that will expand their technology and international scope, rising raw material prices are taking their toll. Already squeezed margins must be maintained if coatings manufacturers are to continue to develop improved technologies.

"The major run-up in ingredients costs is a recent major factor for the entire industry," said McQuade. "All automotive suppliers are facing the need to offset these costs to maintain a viable business that can warrant reinvestment to deliver innovative products and expand globally."

Web Exclusive
Coatings Makers Build Their Product Portfolios

When it comes to automotive coatings technology, coatings manufacturers share a common goal: each works diligently to deliver products that will answer automakers' demands for cost-effective, performance-driven and environmentally savvy coatings. To do so, paint companies are constantly adding to their arsenals.

"Making the right choices in the direction of technology is critical to both the automotive coatings suppliers and their customers. Customer demands are very specific to each OEM's strategy to address environmental issues as well as the requirements to maintain a distinctive brand image," said Marty McQuade, vice president and general manager of DuPont Automotive Systems, a unit of DuPont Performance Coatings.

"For example, each OEM has developed its own strategy to meet environmental issues and DuPont supports each whether it be in solventborne, waterborne or powder systems. The same is true for color, cost and performance. Cost conscious brands can take advantage of technology such as DuPont's new "ECO" process for reducing a primer layer and the investment needed to coat a vehicle. Premium and trend brands pursue color and effect diversity such as through the use of multi-layered, wet-on-wet product and application techniques. And all brands are seeking continuous improvement in coatings performance such as scratch and chemical resistance to improve consumer satisfaction and lower warranty costs."

BASF Coatings is another supplier with a deep roster of product solutions. Here's a look at some of the company's most recent developments: CathoGuard 500 e-coat, a lead-free e-coat offering high edge protection and excellent throwing; CathoGuard 700 e-coat, a one-component lead-free and HAPs-free e-coat with improved "processability;" AdBloc adhesion promoter, a lower-HAPs adhesion promoter for thermoplastic olefin (TPO) and other plastics; ProGloss clearcoat, as cratch- and mar-resistant clearcoat; and SlurryGloss clearcoat, a zero-emission slurry clearcoat.

In addition, BASF Coatings says it will launch TwinGloss clearcoat, a dual-cure clearcoat, this year.


















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