Automotive Refinish Market

By Tim Wright | October 1, 2009

Coatings World spoke with a panel of experts regarding the current state of the global auto refinish market.

Coatings World:
What is the current state of the auto refinish market on a global level as well as in the NAFTA, Western & Eastern European and ROW (rest of world) markets?

Ralf Schueler, director marketing business unit, AkzoNobel Car Refinishes: The past 12 months has been one of the most difficult years we have ever faced in the car refinishes industry. But of course, it has been a year of crisis for the entire global economy, so it would be quite surprising if we had escaped the fallout from the worst economic recession in nearly eighty years. We do believe that conditions have stabilized, and after a steep decline in demand at the end of last year and the first quarter of 2009, we've seen some improvement as the year has progressed. The NAFTA market and Western Europe have been most seriously affected by the global slowdown. While growth in Eastern Europe and Asia slowed, that was a slowdown from a pretty impressive growth rate, and Asia especially, is coming out of the recession more rapidly than the more developed economies of Western Europe and North America. We firmly believe that there is great potential there, because more and more people are buying cars.

John Outcalt, VP Americas, PPG Automotive Refinish: In a challenged market with miles driven down, along with consumer spending, we are committed to our performance and sustaining our foothold in the markets where we are leaders as well as establishing the top position in other arenas. In a changing marketplace where "going green" is increasingly getting top-of-mind attention, we at PPG Refinish haven't taken our attention away from the fact that performance will continue to be the ultimate criteria for whether or not a product, or service, competes successfully.

Darlene Eilenberger, director of marketing for BASF Coatings North America:
All markets have suffered but to varying degrees. The refinish market seems to have suffered less than other segments that are linked to manufacturing, like commercial transport systems and OEM automobiles.

Coatings World: What about China in particular with regards to the auto refinish market there? How would you characterize it?

Schueler: There's no doubt that China presents us with a great opportunity, and we are well positioned to take advantage of it. The Chinese automobile market is already as large as the U.S. market and we think it is likely that growth is going to remain very strong. An important distinction between the Chinese market and the mature markets is the huge number of first-time buyers. That means that the vehicle refinishes market will also be growing rapidly. We have several production facilities there and we're working to strengthen our sales and distribution networks to take advantage of the growth in the Chinese market.

Even considering the impact of the global economic downturn, we continue to see tremendous, double-digit growth for refinish in China. We've seen premium sales more than double in less than three years. The average number of cars per 100 persons in China is four compared to eight for the world average. In mature markets including the U.S., Germany and Japan this figure is between 60-70 cars per 100 persons. So the volume of refinish paint used in China is still far behind the world level, but the growth rate will remain promising. We believe a 10-12% volume growth per year can be expected.

We're also seeing the emergence of environmental concerns as a major issue in China and elsewhere in Asia-Pacific. VOC regulations are being discussed for Hong Kong, South Korea and Australia that could lead to further opportunities for PPG waterborne technology.

Coatings World: What are your thoughts on the effect the recession has had and continues to have on the market? When will the market improve in your opinion and what are you doing to prepare for the turn around?

Schueler: The recession has hurt everybody and we've certainly seen a painful slowdown in sales in the first half of 2009. It does look as if the general economy is now slowly beginning to improve, but it really is difficult to predict how that will affect the vehicle refinishes business. If people are still affected, they might put off a discretionary repair. Our strategy all along has been to be cautious with our resources, to be attentive to our customers and to look for opportunities that would position us to be stronger once the market turns around.

Outcalt: It has been a tough market for our collision repair business customers over the past year or so. Recessionary pressures have caused a significant decline in refinish repair opportunities, especially those smaller repairs that many consumers have chosen to forgo until the economy improves or their situation changes. The economy has also had the affect of accelerating further consolidation in the business, with the total body shop population shrinking significantly over the prior year.

In addition, insurance companies, which account for approximately 80% of all auto refinish repair work, are becoming more selective in determining which collision shops can participate in their direct repair programs. Bottom line is there are fewer shops out there competing for a shrinking number of repair opportunities.

We foresee the market beginning to recover later in 2010 as people return to work and consumer confidence rebuilds. In the meantime, PPG Automotive Refinish is focusing on enhancing our product line and bolstering our programs that help our collision shop customers improve their competitiveness and improve speed and quality of their repair process.

Eilenberger: The recession has clearly affected our industry particularly in the area of low consumer confidence and fears of possible unemployment. When the consumer is worried about where their next paycheck will come from, they will not spend money on nonessentials. In the case of our industry, if a consumer's car is damaged but drivable, there is a good chance that they will not repair it because, at the time, it is viewed as nonessential.

Coatings World: What are the current trends and issues in the market? What challenges does the market face moving forward in the years to come?

Schueler: The demand for sustainable products is a trend that is almost certainly going to stay with us. As repair professionals discover that they can get the same performance from waterborne products and products with much lower VOCs, we're convinced they will switch to them.

Our customers are also looking to improve the efficiency in their shops. That's something that AkzoNobel has always tried to help with, in terms of training and consulting. Our Sikkens Process Centered Environment program shows bodyshop operators how they can streamline their operations to improve productivity.

Managing costs is always a challenge in our industry. Right now we are benefiting from a decline in energy costs, but we anticipate that the long-term trend line will be higher energy costs, so we simply need to be prepared to meet that challenge by improving our efficiency, and possibly by cutting transportation costs by manufacturing closer to our markets.

Outcalt: Compliance with new VOC emission regulations continues to be the major trend influencing the refinish market in Western Europe and North America. The best solution for meeting these stiffer VOC requirements is the use of waterborne technology. We anticipated this need years ago which led to our new generation of waterborne technology for refinish use. In Europe the transition is nearly complete as the majority of shops have completed the conversion away from solventborne basecoat to waterborne. In Canada where rules dictate that the move to waterborne basecoat be completed by June 18, 2010, we have been very successful in converting collision shops to the new, more environmentally-friendly technology. Just recently we reached the milestone of having the 1,000th Canadian shop make the conversion to PPG waterborne. In North America, California is leading the move to waterborne to meet new VOC regulations as some 4,000 shops in that state will have made the conversion away from solventborne basecoat in the very near future.

Across the U.S. to date, we've converted more than 2000 shops over to PPG waterborne technology. What we have found quite interesting is the fast-growing demand for our waterborne basecoat products in areas of the country where air quality regulations do not yet demand their use. There are two factors influencing this trend. First, the "green" movement is gaining wider acceptance throughout the automotive refinish community as progressive shops realize the benefits of a having a cleaner operating environment for their employees as well as the opportunity to promote their use of green products to the community. Secondly, at least in PPG's case, the word is quickly spreading that waterborne basecoat represents a significant step forward from solventborne in areas where it matters most including color match accuracy, ease of use and increased productivity. There's no doubt that the skepticism surrounding waterborne is fast diminishing as more and more shops become familiar with the technology.

Eilenberger: Severity is the key issue facing our market today. Technology from electronics, and safety and environmental aspects are increasing repair costs so rapidly that it is very easy for a car to be totaled and not repaired.

Coatings World: What are the key issues with your auto refinish customers and how is your company addressing those needs?

Schueler: Color is key in our industry and we've always aspired to color leadership in response to the expectations of our customers that a repair job must be perfect the first time. We've had a number of IT systems in place to deliver color accuracy for some time, and our approach is to continually improve those systems. Last year, we introduced a major upgrade to our Automatchic color matching system, and this year, we've introduced Mixit Pro, the latest version of our color formula retrieval system, and integrated it with Automatchic 3, our color measuring device. This integration goes hand in hand with an upgrade of our color database.

It's also important to offer a variety of solutions. The market is not monolithic-the regulatory environment is different in the EU than in the U.S. or Asia. Different considerations come into play in many markets, and the technologies that work for major dealer networks are not always suitable for small bodyshops. So we try to pay close attention to the customer needs across the spectrum and provide suitable products and services to meet all those needs.

Jim Berkey, director, business solutions group, PPG Automotive Refinish: The increased emphasis on lean performance and the key process factors of speed, quality and cost are key issues. As consumers we are all being conditioned to expect quality cost and speed as a part of any product or service that we buy. Automobile insurers and their direct repair programs (DRPs) have always challenged shops to improve performance and are now placing more and more emphasis on cycle time reduction as a way of satisfying and retaining their policy holders. The demand to better satisfy policyholders with fast repair turnaround with high quality at low cost will continue to pressure collision shops to work smarter and compete on that basis. For shops that can effectively implement process changes and drive improved performance, the current challenges represent an extraordinary opportunity to differentiate themselves within the market.

Additionally, PPG understands that interdependent success is more than just a buzz word these days. For us to be successful we must make sure that our customers and potential customers are the ones who are winning in today's competitive environment. To that end, PPG's MVP Business Solutions team is completely focused on providing collision shops with the expert support and guidance needed to address these challenges head-on. We offer an extensive portfolio of programs and services from fundamental business training, to practical courses on estimating and production, bi-annual conferences, all the way up through our industry-leading MVP Green Belt Training. MVP Green Belt training is a four-day, comprehensive course on the practical application of Lean Six Sigma to collision center processes.

Eilenberger: One of the key issues facing our customers today is getting cars to the door. Bodyshops are suffering from fewer accidents occurring, a lower percentage of "drivables" being repaired and a higher percentage of "totals," therefore the shops look for ways to market themselves to keep their number of cars to the door up. BASF Refinish is currently in the process of releasing several programs to help drive more work to the doors of our bodyshops

Coatings World: What is the latest technology being utilized by the auto refinish market?

AkzoNobel's Sikkens Autoclear LV Exclusive.
Schueler: If we are just talking about technologies that are in the market now, then UV-curable coatings is still probably the most important new development. We've added a UV primer to our existing clearcoat. Scratch-resistant, self-healing clearcoats are also an area with great potential. With our Sikkens Autoclear LV Exclusive, which we launched recently, you apply heat to the area around a scratch for about fifteen minutes, and because we've engineered "reflow" properties into the coating, the scratch vanishes. Even a hot summer day will already often do the trick.

But if you are looking further out into the future, then there are all kinds of possibilities. One thing we've been working on is peelable coatings. Right now, they are only used to protect vehicles during transit and storage, but they can also be used to change the appearance of a vehicle temporarily-for special events like the World Cup or a big conference, for example. Further out, we see incredible potential for coatings that have the capability to absorb energy-possibly to power a vehicle electrical system-or to reflect energy in order to keep vehicles cool. With applications of nanotechnology, it is also possible to produce coatings that are actually self-cleaning. Products like these add a new dimension to our business. Where in the past, we delivered color and protection, in the future, we will be building functionality into our products as well.

AkzoNobel is also developing technologies that allow us to reuse raw materials. In some cases, they may be retrieved from other paints, and in other cases, from other products. The idea is to extend the life cycle of raw materials, or even create a "cradle to cradle" loop where the materials are not discarded as waste, but continuously reused. These technologies have great promise for the future.

Tim Salatin, technical director for BASF Refinish North America: Of course waterborne technology is increasing in importance, as is the entire low VOC portfolio. From adhesion promoters to clearcoats, waterborne systems are rapidly gaining acceptance in the filed.

In addition, as the use of anti-scratch clearcoats increase in popularity with the OEMs, refinish must develop technology with similar properties. First, refinish manufacturers must develop a process that allows the original clear to be repaired at all, and then ensure that the repair has similar anti-scratch characteristics to the original coating.

Coatings World:
What are the newest products that your company's refinish group has launched and what do they deliver to the marketplace?

AkzoNobel's new StickerFix repair system uses a coating that is applied to a very thin foil.
Schueler: One product that AkzoNobel has introduced this year that actually ties in with the previous question is StickerFix, which is a repair system using a coating that is applied to a very thin foil. We're very excited about it as an alternative to touch-up pens. The perfectly matching color can be sprayed onto the foil, which can then be applied to minor scratches and nicks, or affixed to vulnerable parts of cars like door edges. People often ignore those nicks and scratches because it is annoying to try to repair them, and the results are not all that great with touch-up pens. So we are basically offering a DIY service that meets a need we've identified. Over the longer term, we see coated foils as an important application, and this is just one example of how the technology can be exploited.

In addition to the recently launched Sikkens Autoclear LV Exclusive we also launched VOC compliant clear�coats for various market segments.

PPG's Aquabase Plus waterborne basecoat system.
Gareth Hughes, director of technology and global platform marketing director, PPG Automotive Refinish: A major focus of PPG's new product launches have been in support of our Envirobase High Performance and Aquabase Plus waterborne basecoat systems. Just recently, PPG introduced new clearcoats incorporating its innovative One-Visit technology. These new clears save significant process time by eliminating the need for flash time between coats, and bake times for the new clears have been reduced to as little ten minutes. These products, combined with the fast process time of applying our waterborne basecoat, will contribute very positively to a paint operation's cycle time performance and enhance the overall Lean Six Sigma equation at performance-driven collision shops.

PPG's Envirobase High Performance waterborne basecoat system.
PPG also launched a new midcoat coating for use by custom car painters and chopper builders which makes all the custom colors and special effects finishes of PPG's Vibrance Collection compatible with the Envirobase HP waterborne system. This is especially good news to those California-based customizers who had concerns whether or not a waterborne custom color system would be available to meet the new low-VOC standards.

Salatin: Recently BASF advanced its adhesion promoter technology. The advancements have made the products easier to use from both application and technical viewpoints. In the Glasurit portfolio, the ultra low VOC system has a new single set of hardeners for use in undercoats, clearcoats and the single stage topcoats. This change decreases inventory requirements and complexity for our customers. For the R-M Brand, the Onyx HD line has now added mixing clears to make the application of this basecoat easier at extremely high temperatures.

Coatings World: What are the latest developments at your company?

Outcalt: The growing North American demand for PPG waterborne basecoat products was the catalyst for PPG's $11 million investment in their Delaware, OH facility dedicated to the manufacture of waterborne refinish coatings.

In addition, as part of its commitment to the growth need and to improve the overall automotive refinish industry in China and help meet the need for refinish skilled technicians, PPG recently established the first waterborne automotive paint training center in a college in China at Shanghai Communications Polytechnic (SCP).

Most notable is the opening of the Glasurit Refinish Competency Center in Hiltrup, Germany. The Glasurit Refinish Competency Center is one of the world's most advanced information and training facilities for spraypainters (see page 24 of this issue for more details). Also this year BASF is celebrating the 90th anniversary of its R-M brand.