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?
Matt Robertson, global marketing director, DuPont Performance Coatings, Refinish Systems: The market in North America and Western Europe is bouncing back a little slower than we would have guessed in mid-2009. As opposed to a steady recovery to 2008 volume levels over two to three years, it now appears these markets have sought a new, lower volume level and will show only incremental growth in the immediate future. Of course, that growth picture is vastly different based on the segment you’re talking about. We see strength in the U.S. MSO segment as further consolidation happens, and increases in the economy sector as cost pressures force some work in that direction.
It’s no secret that India and China continue to boom, both in premium and economy segments, so we see continued strong growth there. The China market is particularly dynamic with the rise in power of OEMs and buying groups and rapid growth of the economy segment. ROW we see as a mixed bag. Premium and economy segments in both Latin America and Eastern Europe should see better-than-GDP growth, as should developing Asian countries excluding China and India. In developed Asia, we are looking for a modest growth outlook.
China is particularly dynamic for a few reasons. Extremely rapid growth of the car park in all segments is one. I’m not sure a few years ago I would have guessed that Porsche would sell more cars in China in 2012 than in Germany or that China would produce more passenger cars than the U.S. in such a short time.
In addition, there is a huge number of domestic OEMs fighting to grow and, in some cases, sell internationally. There is also a huge push on the part of existing OEMs for central billing agreements with the multi-national paint suppliers.
In China there is also a rapidly evolving insurance situation and a large number of local players, particularly in the economy segments.
What are your thoughts on the effect the recession has had and continues to have on the market?
Robertson: Clearly the recession has had a dramatic impact on our markets. Many of our leading indicators—miles driven, consumer confidence, claims frequency and the vehicle repair index—show lots of weakness. On the consumer side, many people decided to live with minor collision damage instead of triggering a deductible and getting their cars repaired. On the supplier side, shops, distributors and paint suppliers drew down inventories to generate more cash. I think this type of downturn makes a lot of people in our value chain hesitant to invest until they see signs of a strong recovery. We see it as a once in a decade chance to grow our share in targeted segments.
What are the current trends and issues in the market? What challenges does the market face moving forward in the years to come?
Robertson: Their are several prevalent and impactful issues in the market such as overcapacity in developed markets. This means shops have to select those paint suppliers that will be great partners in helping them survive and thrive in their marketplace.
Continued consolidation and rising strength of MSOs and mega-dealers in the U.S. is another trend as is the continued demand on the part of body shops, globally, for paint and supporting systems that deliver greater productivity.
VOC legislation in many nations is driving a push to waterborne systems and continued pressure from OEMs, insurance companies and consumers is squeezing available margin space.
Lastly, growing economy segments in developing markets are requiring business models beyond the traditional mixing machine/body shop model prevalent in premium segments. A potential barrier to growing business in these markets is the shortage of qualified, trained technicians.
What are the key issues with your customers and how is your company addressing those needs?
Robertson: Clearly everyone needs a paint system that is robust, reliable, productive and provides great color match. With shops under greater pressure for improved cost and throughput, there is an ever-increasing desire for paint that hides better and dries faster. In response we work hard to maintain our leadership in paint technology and feel like those companies whose next generation of waterborne paint “sprays like solvent” instead of taking a technological leap forward will be at a competitive disadvantage.
Continuing to be seen as the premiere business partner for the body shop owner requires much more in addition to the best paint, so we focus a great deal of our effort on the non-paint pieces of our value proposition. The key is driving more business to our body shops, and then driving those cars through the body shop faster and more efficiently. This means heavy investment in our Performance Alliance network, insurance relationships, lean consulting, proprietary color systems and offerings uniquely tailored to serving the needs of specific segments. We believe we’ve got the best non-paint value proposition to the body shop to go with our world-class paint systems.
What is the latest technology being utilized in the market?
Robertson: DuPont is a technology leader with over 35,000 patents—an average of about one every other day since our founding in 1802. So, we could constantly advance the state-of-the-art in advanced coatings technologies. But I don't think the wider auto refinish market is asking for nanotechnology or smart coatings, for example. They are asking for technology tha most cost-effectively allows the shop to bring in business and make repairs with a perfect color match. So our latest technology innovations are tools to help connect the shop to insurance companies and tools that allow faster and better color match such as DuPont's Performance Services and best-in-class spectrophotometers and electronic color delivery systems.
Our newest and most important product is our water based Cromax-Pro line. It’s clearly the most productive waterborne on the market, providing better hiding and color match than any competitive offering, allowing for significantly better throughput times and greatly reduced energy consumption.
Are there any other developments on DuPont’s refinish front worth noting?
Robertson: We are constantly on the lookout for ways to grow what is the largest and most successful refinish business in the world. To that end, we continue to assess tactical acquisitions that expand our footprint either geographically or into an adjacent segment. One highlight for us is the opening of our new Coatings Technology Center. We closed an outdated facility and have stood up our U.S. technology organization in a new state-of-the-art, multi-million dollar facility at DuPont’s Experimental Station, our worldwide technology headquarters. This is a major commitment to ensure our continued product and technology leadership in the industry and allows our scientists to leverage the knowledge of our wider technology organization that has continuously produced market-altering innovations.
DuPont Performance Coatings (DPC) has partnered with The Body Shop, which specializes in “lean” collision repair. The agreement between the parties covers the sharing of The Body Shop’s Star-Link Collision Repair System, a Kaizen centered “lean” business model that was developed by John Sweigart and Brad Sullivan over the past 12 years. The model is currently practiced in all of The Body Shop’s Pittsburgh and New Jersey locations, as well as in several other independent repair shops in the United States and Canada. DPC is partnering with The Body Shop to offer a refined version of the model to DPC body shops. The Body Shop operates a customer-focused group of collision repair centers with plans to continue rapid expansion over the coming years. Sweigart and Sullivan created the Star-Link Collision Repair Network, made up exclusively of repairers who are committed to genuine improvement through Kaizen. This group exists to promote to the customer a substantially better offering, and to work together through shared learning for the sake of a better collision repair industry, according to the company. DPC will offer courses at NACE, SEMA and other events featuring the learning from exposure to The Body Shop.