Frost & Sullivan Executive Summary:
Automotive Coatings and Adhesives
30 June 1998
Introduction to Automotive Coatings and Adhesives
This report discusses advanced paints, adhesives, and undercoatings used by North American automakers. Chart 1.1 illustrates the report's structure. Frost & Sullivan report 5715-18, North American Markets for Advanced Automotive Material Technologies, covers advanced metals, plastics, ceramics, and glass.
Overview
The term "advanced" is relative—the latest technology today may be standard technology next year and out-of-date the year after. In this sense, the market for advanced coatings and adhesives will never be mature or saturated—there will always be new technologies.
Under pressure from consumers and government agencies, automakers seek to produce vehicles that are:
- Better performing
- Less expensive
- Less polluting
- More comfortable and convenient
- More durable
- More fuel efficient
- More maintenance-free
- Safer
Characteristics of the products analyzed in this report that contribute to these goals may include:
- Greater durability
- Greater heat tolerance
- Greater safety
- Greater strength
- Increased performance
- Lighter weight
- Quieter operation
- More easily recycled
Researchers are working to develop specialty paints, adhesives, and undercoatings for these characteristics. The United States Council for Automotive Research (USCAR, sponsored by Chrysler, Ford, and General Motors) has several groups active in this area. These groups are:
- Low Emissions Paint Consortium (LEPC)
- Automotive Composites Consortium (ACC) Joining Group
- United States Automotive Materials Partnership (USAMP)
- Vehicle Recycling Partnership (VRP)
One tradeoff for the benefits of advanced materials is that advanced materials may cost more than the materials they replace, at least initially. As manufacturing methods improve and volumes increase over time, prices tend to fall. This enables technical advances to spread from top-of-the-line vehicles to family and economy vehicles.
New materials may impose some start-up costs on automakers. Some examples are:
- Parts joined by adhesives rather than mechanical fasteners need different assembly techniques and new equipment to apply the adhesives
- Powder paints and waterborne undercoatings may need different spraying equipment than earlier products
Summary of Major Findings
Market Growth, Opportunities, and Total Forecast
The total North American automotive coatings and adhesives market is estimated to have generated revenues of $1.45 billion in 1996. Paints are expected to see very slow revenue growth, adhesives revenues are foreseen to grow strongly, and undercoatings revenues are projected to contract slightly. Total market revenues are forecasted to grow 1.2 to 1.5 percent per year over the 1996-2003 forecast period. This results in anticipated revenues of $1.59 billion in 2003.
The primary drivers and restraints in this market are:
- A saturated market for light vehicles, meaning that an increase in vehicle production is unlikely and no growth from increased derived demand is anticipated
- Automakers' desire to produce better vehicles, meaning that they are increasingly likely to use adhesives and undercoatings to reduce noise and increase durability
- The increasing use of plastics, which can easily be joined by adhesives
- Stagnant prices for comparable products
- Automakers' efforts to get annual price reductions from suppliers
Major trends in this market are:
- A transition from solvent-based products to high-solids, 100-percent solids, and water-based products to reduce emission of volatile organic compounds (VOCs)
- A slow trend to consolidation among adhesives manufacturers
Analysis by Major Segment
Advanced Paint Technologies
The appearance of a vehicle's paint is considered a major selling point by automakers. Therefore, they are disinclined to compromise on appearance in pursuit of their other goals. These goals include reduced emissions of VOCs from their paint shops, greater durability, lower cost, and faster drying time.
Because of the cost of installing a new paint shop on a production line, the transition from solvent-based paints has been slow. The conversion to water-based or powder paint systems tends to occur when a paint shop is scheduled for replacement in any case. New technology that burns off VOCs before being released has reduced the urgency to adopt newer technologies. Thus, solvent-based paints still hold the majority of the market.
Unit shipments and the average price are both projected to grow very slowly over the forecast period, making for slow anticipated revenue growth. Revenues are projected to grow slowly from $1.09 billion in 1996 to $1.15 billion in 2003. This is 0.8 percent on a compound annual growth rate basis.
Advanced Adhesives Technologies
Use of adhesives has been growing for the following reasons:
- Adhesives can reduce noise and vibration, compared to mechanical fasteners
- Plastics can be joined easily with adhesives, so the increasing use of plastics benefits the adhesives market
- Adhesives can be applied by automated machinery
- The availability of effective solvent-free adhesives addresses concerns about emission of VOCs
Strong unit growth and modest price growth are projected to result in revenue growth of 5.3 percent, compound annual rate, over the 1996-2003 forecast period. Revenues are projected to grow from $192.9 million in the 1996 base year to $277.8 million in 2003.
Advanced Undercoatings Technologies
Undercoatings are applied primarily for their ability to reduce noise in a vehicle's interior. Other desirable characteristics of undercoatings are durability, chip resistance, fire resistance, and light weight.
Undercoatings, too, are seeing a transition from solvent-based to water-based formulations. As water-based products have improved, their share of the market has increased and is now estimated to be about 30 percent. This trend is expected to continue.
Water-based products cost less per gallon, but more gallons are needed to obtain the same coverage. Water-based formulations contain a lower proportion of solids than do solvent-based products.
Thus, the transition to water-based products is expected to result in greater unit demand, but a lower average price. On balance, market revenues are foreseen to decline 1.0 percent per year, compound annual rate basis, from 1996 to 2003. This means that the market size is expected to contract from $165.9 million in 1996 to $154.6 million in 2003.
Other disadvantages of water-based undercoatings are a shorter shelf life and greater sensitive to temperature extremes in storage.
Competitive Analysis
Major companies in these markets include 3M, BASF, DuPont, EFTEC, Henkel, Hoechst Celanese, and PPG Industries. Many smaller companies also compete, sustained partly by supplying specialty products and partly by supplying Tier 1 and Tier 2 suppliers.
The adhesives market, in particular, is fragmented. This may be an industry ripe for consolidation, especially since automakers are seeking to work with fewer, more capable suppliers. Some consolidation moves have been undertaken in recent years. This trend is projected to continue, although at a moderate pace.
Technologies
A technology trend common to all of the products under consideration is the replacement of solvent-based products by high-solids and water-based products. This is in response to efforts to reduce release of VOCs into the atmosphere. When exposed to sunlight, VOCs and oxides of nitrogen photochemically react to form ground-level ozone, a constituent of smog.
Another major technological trend is the replacement of mechanical fasteners with adhesives. This follows from the search for more-efficient assembly methods, efforts to reduce noise and vibration, and the increasing use of plastics in automobiles. Plastics can be efficiently joined with adhesives.
