Europe Reports

Europe OEM Coatings Market Sees Falling Sales But Increased Investment in Paint Shops

By Sean Milmo, European Correspondent | March 1, 2013

One of the attractions of the European automobile sector to coatings producers and their raw material suppliers is that a strong presence in the region’s OEM segment offers opportunities for sales stimulated by demand outside Europe.

Cars sales have been falling in Western Europe as yet another economic downturn confirms expectations that the region’s recovery from the 2008 financial crisis will be a lengthy process.

However, while demand for cars declines, large sums are being invested by automobile manufacturers in the modernization of their paint shops in the region to cut production costs, particularly through reduced energy consumption, and to make them more eco efficient.

This means that OEM coatings producers and their raw material suppliers have to find ways of offsetting shrinking margins.
Squeezed profitability in the region’s car sector over the last few years is thought to be a major reason why DuPont decided to pull out of the segment by recently selling DuPont Performance Coatings (DPC), predominantly an OEM and auto refinish coatings business, to Carlyle Group, a Washington-based private equity company.

In the first half of last year, DuPont Performance Coatings GmbH, Wuppertal, Germany, which is at the heart of the OEM coatings operation of DPC, reported a 2 percent rise in sales to $2.1 billion. Pre-tax operating profit soared by 30 percent from $138 million to $179 million.
The increase pushed up the sales margin from 6.6 percent in the same period of 2011 to 8.4 percent but this was still well short of DuPont’s reported target of 11 percent for its coatings operation.
With fewer cars being produced for the region’s core automobile market in Western Europe, OEM coatings businesses can achieve higher revenues only by providing added value.  Often this can only be realized by contributing to the innovations and initiatives aimed at pushing down costs and raising efficiencies.

New car registrations in the European Union and non-EU Western European states such as Norway and Switzerland went down by almost 8 percent to 12.5 million last year, according to market researchers PwC Autofacts.
This was the fifth successive decline in new car registrations in the region so that demand is still 3.5 million units below what it was in 2007.  PwC Autofacts is expecting a small recovery later in 2013 but this will not be sufficient to prevent a further decline of 1.2 percent in registrations this year.
Nonetheless, drops in demand in countries like Germany have been partly offset by strong export sales in markets outside Europe.  In the UK both sales and production increased last year because of exports to non-European regions, especially of premium cars.
One of the attractions of the European automobile sector to coatings producers and their raw material suppliers is that a strong presence in the region’s OEM segment offers opportunities for sales stimulated by demand outside Europe.  European car companies, especially the leading German manufacturers Volkswagen, Daimler and BMW with their ranges of global brands are not only big exporters but also builders of new plants in high growth areas like the Asia Pacific.

However, with demand shrinking in Europe and intense price competition from domestic OEM manufacturers in the emerging economies, car companies in Europe have to continue to slash their own production costs.  “Automotive companies (in Europe) have trimmed any remaining fat and are now cutting into the bone to sustain their business operations,” said Giorgio Elefante, PwC automotive partner.

With paint shops the biggest cost is energy. A conventional paint shop can account for as much as 70 percent of a car plant’s total energy consumption and of gas 92 percent, according to the figures from Durr AG, the German global leader in paint shop installation and engineering. Another high cost factor is the levels of wastage of paints and other raw materials.

As a result, innovations in paint shop technologies have been primarily aimed at reducing energy consumption and waste.  These are being achieved by improved pretreatment and electrocoating technologies, such as a full rotation of the car body in the dipping tank, less use of drying ovens, more separation and collection of solid particles and greater use of robots and automatic atomizers for electrostatic paint applications.

While car manufacturers have been announcing plans to close plants in Europe because of overcapacity in the region, many of the remaining ones are having or will have their paint shops rebuilt or refurbished.

In the first nine months of last year, Durr’s sales went up by 44 percent in Germany and 32 percent in the rest of Europe, whereas in the rest of the world they dropped.
“Most of the increase in sales in Europe last year has come from engineering and equipment for paint shops,” explained Gunter Dielmann, Durr’s investor relations manager. “We don’t expect such a strong year in Europe in 2013 but over the next few years the paint shop market will remain stable in the region because the trend is towards cutting the cost of painting cars through the modernization of application technologies.”

Coating producers have been strengthening their contribution to the improvements in these technologies through new innovations in integrated processes, which reduce the number of paint layers requiring drying.

PPG Industries has introduced a system that eliminates the need for a primer by enhancing the properties of two layers of basecoat without requiring a heated flash-off zone in between.  Another innovation allows wet-on-wet applications of primers, basecoats and clearcoats without any flash-off zones in between.

BASF Coatings has been investing in electronic equipment in its R&D centers to enable it to replicate the widening range of automatic equipment in OEM paint shops.  It has been introducing at its European R&D units a new paint application robot whose control software has been developed by BASF itself.  “(It) simulates nearly any situation at paintlines all over the world,” says Walter Jouck, head of the company’s coating technology management.

It has also been forming research partnerships for making innovations and raising efficiency.  It has a joint venture with Henkel AG & Co KGaA, Dusseldorf, to develop improvements to metal pretreatment and dip coating processes.

BASF has recently completely a study with Durr on the eco-efficiencies of car coating processes so that the two companies can work together to raise the eco-efficiency of individual paint shops. “The conditions and the impact factors at the car manufacturers and their plants vary,” explained Alexander Haunschild, BASF’s head of OEM Coating Solutions Europe. “There is no standard answer to the question as to which process is best.”

What is certain is that in the future car manufacturers in Europe will want the lowest possible costs while achieving the highest possible quality and eco standards at its paint shops.

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