Business Corner
STRATEGIES & ANALYSIS
BY PHIL PHILLIPS
CONTRIBUTING EDITOR
PHILLIPS@CHEMARKCONSULTING.NET
No one is immune...we’re all in
the boat together
A look at the
impact of the
current financial
crisis in the U.S.
and its effect
on the paint,
coatings
and related
industries.
CHEMARK will not comment at this time on
the near calamity mess we’re in with the so-called financial community. We can only say
that the resolution and potential $700 billion dollar
bailout will have a lasting effect on all the segments
we track and consult within.
Considering only a few but important segments we track, reliable statistics indicate the
following contributions to our gross domestic
product (GDP):
• Automotive contributes 14% to the U.S. manufacturing GDP;
• Electronics contribute 27% to the U.S. manufacturing GDP;
• Appliances contribute two percent to the finance,
insurance, real estate, rental and leasing GDP;
• Housing starts contribute 55% to the finance,
insurance, real estate, rental and leasing GDP and
13% to the total private industry sectors; and lastly
• Construction contributes four percent to the
total private industry sectors GDP and 26%
compared to the total manufacturing industry
sectors.
These five industries contribute a total of
23% to our total U.S. GDP. As a reader, you are
probably in the value chain of activity supporting coatings, paints, adhesives or sealants
to these industries and, therefore, subject to
the shifts these industries experience, either
directly or indirectly. It makes sense, therefore, that we track and understand the underpinnings of each if we are suppliers to these
industries . . . RIGHT?
The fact that these industries are all currently depressed is not a surprise but the
extent of their negative position on the longer
term may in fact be a surprise. Automotive and
passenger truck production is down 14%; appliance production is down nine percent; housing
starts are off 33.1%; non-residential construc-
tion is off two percent; and lastly, electronics
are off seven percent. This is the situation
through just the first half of this year. Even
more to the point, they haven’t improved from
June and are even worse now.
“Versus the same 2007 time period,
architectural paints are off 18% through
June and estimated to continue to be off
through August at a 20% rate and, will
get worse as paint data for housing lags
housing start data.”
All of these industries are influenced greatly by relative ease of available credit terms at
the end-user position of the “chain.” Certainly
when credit tightens, houses are not built,
autos and trucks are not produced, and appliances and electronics are not in demand if
the aforementioned are not purchased allowing the latter items to be “pulled” through the
system.
Versus the same 2007 time period, architectural paints are off 18% through June and
estimated to continue to be off through August
at a 20% rate and, will get worse as paint data
for housing lags housing start data. In addition “starts” will most probably decline even
further when compared to 2007 same period
through the second quarter 2009.
We see a continued decline in auto OEM
coatings sales in both gallons and dollars
through the year and well into 2009, equaling
a year over year negative comparison of 20%
for 2008 and 22% in 2009. Contributing to the
lower rates of coatings usage based on lower
