Red Spot: Dynamic, evolutionary and revolutionary are three words that immediately come to mind when we think of the global automotive OEM coatings market. Three drivers that stand out as critical to change are the “greening” of the mature, first world markets, the growing entry level/middle class in second and third world markets, and the downward trending in age demographics.
Green is pushing new technology in the form of hybrid, diesel, electric and biodiesel concepts. These are changing our concept of how a car or truck should look, sound, accelerate and refuel. Additionally, the OEM’s in North America are discovering that there is a market for small cars. Not cheap, basic, unrefined cars, but smaller versions of the large, well designed, good handling, good accelerating, feature laden fun to drive cars they are used to.
All this change in the automotive market is opening the door for changes to conventional ideas and expectations of what interior and exterior colors should be, as well as textures, glosses, hues and contrasts.
Younger people, as exhibited by their phone covers, computer skins, clothing, shoes and overall style, aren’t necessarily looking for a silver car with black interior. Expectations in terms of style carries over to their vehicles, and we will see more vibrant colors and hues going forward.
The global automotive OEM coatings sales correlate very highly with auto production, as you would imagine. From a traditional design and assembly process standpoint, the sheet metal continues to be electro coat, prime, base coat and clear coat.
Continuous, evolutionary change continues, as coatings and processes are developed to minimize the environmental impact by reducing VOCs and reducing energy usage associated with traditional paint application processes. Both the U.S. and Europe lead in many of these areas, moving from solventborne coatings to waterborne coatings, and designing and developing coatings and processes that eliminate bake cycles, i.e., wet on wet on wet application. Other exterior coating applications continue to include fascia and grills, wheel covers, body side molding/ trim, mirrors, door handles, spoilers, roof racks, ground effects and license plate surrounds.
From an interior standpoint, we see continued, added emphasis on using coatings to add richness, luxury, feel and design elements to the car. As the major automotive magazines continue to report, consumers don’t like cheap plastic. Today’s high performance, low and high gloss coatings, along with design elements such as graining/texturing, allow OEM’s to turn cheap plastic into rich, luxurious parts, offering a final interior that is greater than the sum of its parts.
As far as the relationship between the economy and car sales, this is an interesting question. Economists have thirty to fifty years of data, tracking car sales, home sales, gas prices, scrappage rates, interest rates and other variables.
As one would surmise, many of these indicators have a positive correlation. From a global perspective, we tend to look at things from a market standpoint, paying attention to the maturity of the market. The growth markets are the emerging markets, such as China, India and Russia, where private car ownership can still be measured in the 10 cars per 1,000 people range. As a middle class is developed, car sales will grow at an extremely fast rate. People who make a living looking at global economies have named Brazil, Russia, India and China the BRIC, and feel this region will experience the greatest automotive growth in the next 20 years.
CW: What can we expect moving through the next few quarters? Describe your company’s strategy for navigating these turbulent times and what is your prediction for the outcome of 2011 in terms of auto paint sales?
Red Spot: We are optimistic regarding the short-term and long-term future. Like everyone else, we rely on the top global analysts for predictions of future car sales and growth, as this is their full time business. Like all companies that survived the 2008/2009 automotive melt down, with sales/production reduced by 50 percent, we have reduced our breakeven point, watch our cash very closely, and manage our cost growth. It is a double-edged sword. A company must invest in its future to have a future, but at the same time, it has to win today’s battles to be around to fight tomorrow’s battles.
Given the forecasters’ predictions, we expect to see six to eight percent growth versus 2010 in North America, more in China and less in Europe.
CW: What is your outlook for continued growth in the automotive OEM segment in the coming years?
Red Spot: Remember that automotive coatings serve a dual purpose—performance and decoration. Anything exposed to the sun’s ultraviolet rays for a lengthy period of time has to be able to withstand the very negative effects—fading, drying out, cracking, yellowing, etc.—caused by UV exposure. Additionally, the OEMs continually change their specifications to meet real world changes in how consumers use their vehicles. For instance, interior coatings that withstand the harsh chemicals found in suntan lotions, bug sprays and air fresheners have been developed.
The OEMs would like to reduce their reliance on coatings from a cost standpoint. From a practical standpoint, this will be very difficult, in terms of performance and decoration. Vehicles molded in color, which would eliminate the need for coatings, does not offer the performance or decoration consumers are accustomed to.
Mid- and long-term, we see the coatings market growing. In the emerging markets, “starter cars,” which are very low cost vehicles that are also low on features are growing in popularity. If no one in your family has ever owned a car, and you finally buy your first one, you don’t care if the instrument panel is painted a rich low gloss black with contrasting bright silver accents.
But, your goal may be to eventually move up to a higher level car with a look you can be proud of. Today, and probably tomorrow, that look will require coatings.
CW: What are the key trends and challenges manufacturers of automotive OEM coatings face now and in the years ahead?
Red Spot: Never has innovation been more important in the automotive marketplace. In order to differentiate vehicles, OEM’s are looking to interior styling to set their cars apart from the competition. Styling cues influenced by home interiors have made their way into the interior of vehicles. Potential buyers look to their vehicles to express their personality as well as give them access to all the comforts of home. From first time buyers to the more discriminating buyer, all are looking for the look and feel of high end finishes in every size of vehicle. Small no longer means you have to settle for cheap finishes. Luxury is expected at all levels to some degree. What does this mean for future appearance options?
New appearance options include color, brilliance, coordination of materials and holistic development to create a cohesive interior environment.
Haptic experience describes the “feel” of materials use. A soft, less rigid appearance and feel is made possible by a combination of substrate and coatings.
New technologies include germ-fighting coatings, anti-glare coatings, coating glazes that reduce the temperature, self-healing coatings, in-cabin VOC reduction and chrome-like coatings.
Global manufacturing, sales, marketing, service and intelligence will be required to compete now as in the future. Design and sourcing of vehicle interiors globally requires relationships in all markets, including emerging markets, offering similar options supplied globally but with emphasis on regional preferences.
As we mentioned earlier, the “green” trend is and will continue to influence automotive coatings. Fewer VOCs eliminated into the environment and a smaller carbon footprint as it relates to the manufacturing of the vehicle will be a strong driver going forward, obviously. To meet newly toughened CAFÉ requirements, vehicles will be forced to be smaller and lighter. Lighter means new materials that will require new coating technology.
In mold coating will replace stand-alone spray painting applications in new areas, as we are seeing today. Cost is always a challenge in anything related to the automotive industry.
As much cost pressure as the automotive OEMs experience, they have actually been spending more money on the interior, as this is definitely a differentiator for the customer. They have gone to great lengths to eliminate the cheap plastic look and feel from all but the low end cars and trucks, and it is the right decision, per the focus groups and the buyers.
CW: What are the emerging markets and segments for your company’s auto OEM coatings business?
Red Spot: Red Spot’s emerging markets primarily include Asia (China, Thailand, Korea, Vietnam), India, Brazil, Argentina and Russia. We are expanding in two of these areas this year.
CW: Any new products to hit the market recently? What technologies are driving the market now and what can we expect down the road in terms of automotive coatings technology?
Red Spot: New products tend to be either leading or lagging. Lagging would be reacting to a new OEM performance specification, while leading would be the introduction of a new product that solves a problem they may not even know they have. This could include cost, performance, decoration and application, to name a few. As mentioned earlier, “green” technology will continue to be needed and required. We all need to be good neighbors to each other and the environment. Higher solids, lower VOCs and waterborne coatings will continue to grow. Some OEMs, for example, are looking at physical vapor deposition (PVD) as a chrome look replacement for traditional electroplated nickel chrome plating. This PVD process requires a topcoat for protection (performance) and a basecoat for a smooth surface prior to the metal deposition (decoration). This is a very green alternative to chrome plating and we think this will continue to grow. Red Spot is a leader in this coating technology.
General Motors says it sold more cars and trucks in China last year than it did in the U.S. for the first time in its 102-year history. The company sold 2.35 million vehicles in China. That’s about 136,000 more than it sold in the U.S. GM says sales in fast-growing China were up 28 percent, but rose only 6.3 percent in the U.S. GM’s sales were up 12 percent worldwide as it recovered from a 2009 bankruptcy. Despite GM’s growth, Toyota held onto the title of world’s largest automaker. The Japanese company reported 8.42 million sales worldwide last year. That’s 30,000 more than GM’s 8.39 million. GM expects growth to continue. The automaker recently said it added a shift to a Flint, Michigan truck plant to handle increased demand.