Coatings World - October 2012

“OEM paint manufacturers are essentially trying to make their products more attractive to end-users. So what do end-users want? End-users are car manufacturers and they want to cut costs. This creates several efficiency and demand trends in the industry that will also affect the sales of OEM coatings. For example, competition

about 800 vehicles per 1,000 people; in Japan, the ratio is about 600 to 1,000. While in China, the absolute number of people is much higher and the number of cars is much lower. Consequently, there are only about 60 vehicles per 1,000 people in China, so we can see that the market has a long way to grow before it is “mature.” So if you could imagine when China reaches 300 cars per 1,000 people—that’s relatively modest—that would mean about 400 million cars on the road. Now, roughly translating, if drivers buy a car about every 10 years or so—there are 10-year scrapping policies as a basis for this assumption—that’s about 40 million vehicles sold every year.

In 2011, there was about 18 million sold. Therefore, we wouldn’t say it’s saturated—although we see clogging effects in big cities—but as far as the country as a whole, there is good reason why so many people are optimistic about the automobile market and automobile coatings in China. For the automobile coatings market, this translates to a healthy demand for OEM coatings.

is too high for OEMs to pass-on excess costs to customers, and consequently, they put pressure on their upstream suppliers to offer a cheaper product. Therefore, some coatings suppliers may have introduced products that reduce costs by combining functions between coating layers, or offering a paint that can be applied in thinner coats. ”

Do you see this as a long-term trend in the Chinese market or do you see a rebound in the near term? Johnson: We believe the Chinese automobile market will bounce back but it will not return to the 30 or 40 percent figures we saw in 2009 and 2010. Rather, it will continue to grow, but at a more modest pace. Currently, we are expecting growth of somewhere around eight to nine percent in 2012.

Would you say that the Chinese automobile market is a “mature” market? Johnson: As far as the market saturation, it is very far from that point. If you look at mature automotive markets such as the U.S. or Japan, the figures are very different. In the U.S., there are

What are some other developments in the market besides automotives themselves that you see driving the auto coatings market in China? Johnson: The insurance industry will be a major driver for repair coatings. As the insurance market becomes more mature, more cars will be legally covered, claims will be filed more regularly that will cause the demand for repair coatings to increase. The insurance market has made good progress in coverage and credibility over the past decade. As drivers get insurance coverage and more expensive cars, they are more likely to take their vehicle to be repaired and to maintain their original value.

Are we seeing faster growth in repair coatings
relative to OEM coatings?

Johnson: Yes. Repair coatings and OEM coatings are fundamentally different in terms of where they’re used, how they’re used, and so are drivers affecting their growth. For repair coatings, both the number of cars on the road, the value of the average car and the average distance driven are all increasing. This is at least in part related to improvements in China’s roadway infrastructure. All of this translates into growth in the repair coatings market, especially for higher-end foreign coatings. These coatings are used to repair some of the newer, higher value cars such as Mercedes and BMWs being sold in China. The overall value of cars on the road is increasing, and therefore the importance of 4S and Tier 1 repair shops, are also increasing.

But again, another issue that is affecting the total sales growth of repair coatings is the low-end market and its wider range of applications. The advantage is that repair coatings can simply be sprayed-on and do not require heating like most OEM coatings do. On a unit cost basis, repair coatings are typically more expensive than OEM coatings, because unlike OEM coatings, repair coatings don’t require heating.