efficient cars and trucks. “North America and Western
Europe are much slower to change designs and bring these
new units to market versus the Japanese, resulting in market share losses for the domestic auto makers in these
regions. The lower unit sales in North America and Western
Europe results in pushing back on all suppliers, including
paints, coatings, adhesives and sealants, to lower prices and
increase service without being compensater for the latter,”
Phillips explained.
“Ultimately, this is pushing the formulators who supply
the coatings to this market into altering their historical
roles within the auto OEM market as well as moving more
assets into adjacent markets where the pressure is less and
the margins are higher,” Phillips added. “An example would
be deemphasizing OEM and emphasizing auto after market. Another would be to move more assets into the tier supplier spot in the value chain where pressures on margins
are not quite as severe as the OEM direct sale.”
PAINT MAKERS LOOK TO EMERGING MARKETS
Overall, OEM coatings manufacturers continue to face many
challenges including raw material cost increases, which are
directly correlated with rising oil prices. At the same time,
automotive manufacturers are continually exerting pressure
on suppliers to lower costs.
“Both OEMs in mature and emerging markets have come
under increasing pressure to cut costs in order to compete,”
said Simon Cheung, market development manager, PPG
Industries, Inc. “While OEMs in mature markets are striving
to compete with OEMs in emerging markets, OEMs in emerging markets are attempting to preserve their low cost advantage over OEMs in mature markets.
“While the North American and Western European auto
OEM coatings markets have been growing very slowly in
recent years as a consequence of relatively flat vehicle production in those regions, indeed, the coatings markets in these
regions is expected to be especially challenging since vehicle
production is forecasted to decrease this year,” Cheung continued. “On the other hand, China, India and other emerging
regions continue to experience rapid market growth.”
In Russia for example, although GDP growth is beginning
to soften one of the country’s major growth markets will be
the rapidly growing automotive industry as foreign carmakers invest on Russian soil.
According to a report profiling the Russian paint industry
released by Information Research, car output in Russia is
expected to soar from 165,000 units in 2004 to 900,000 by
2010. As a result demand for automotive OEM coatings will
multiply rapidly, possibly by as much as 30% per annum
from its current level of approximately 50,000 tons.
At the same time, activity in India’s automotive sector has
heated up over the past yeaer.
Korea Chemical Company (KCC) is setting up base in
Sriperumbudur near Chennai, close to the Hyundai Motors
plant. Hyundai, which has been the largest client for Asian-PPG Industries—a joint venture between Asian Paints and
PPG Industries—has already decided to shift 50% of its business to the Korean company.
“Hyundai has decided to do business with the KCC for
its second line. We will now have to share the business
with them,” confirmed Ashwin Dani, vice chairman and
managing director, Asian Paints.
Asian Paints, in turn, has partnered with Japanese paint
company Dai Nippon Toryo (DNT) for a breakthrough with
the Japanese auto company.
Currently, Asian PPG does very small volumes for Honda
Motors in India. The company is also setting up its first facility in Sriperumbudur, to service Hyundai as well as tap the
Mahindra-Renault-Nissan facility that is coming up near
Chennai and the Mahindra-Renault plant in Maharashtra.
Japanese major Nippon Paints is also setting up its base
both in Delhi and Chennai. According to industry insider,
Nippon “is likely to grab a sizeable chunk of the OEM segment as Japanese carmakers like Suzuki, Honda and
Toyota prefer doing business with Japanese companies.
“While Kansai Nerolac Paints had a clear monopoly in this
segment so far, it will now have to face stiff competition
