Over 1,500 scientists, engineers and technology staff of the US-based Axalta Coating Systems, stationed equally across the world, work to deliver innovative, performance and beautiful colours. The company spends four percent of its annual sales of $4.4 billion on R &D. It also augments its technological and process capabilities through strategic acquisitions – more than 15 in the past two years having annual sales of $800 million. The company recently opened a new manufacturing facility and coatings plant in Gujarat, India, an emerging global automotive hub. Charles Shaver, Chairman and CEO of Axalta Coating Systems, caught up with T Murrali of AutoParts Asia there and spoke about the company’s plans to bring more shine to the Indian coating and polishing market, and to Axalta globally also. Excerpts from the conversation:-
Q: Five years ago, Axalta forecast that three water-borne processes, second in popularity and utility then, would be the largest used consolidated coating process by 2018. How true is that foresight?
A: These processes are used predominantly by many new OEM plants around the world. Now we do have a couple of competitors doing similar things. You would keep on seeing evolution in these, wet processes, lower ambient flash, and the OEMs would continue to look at ways to bring operating costs down with lower temperatures, shorter flash times, and taking primers out where they can.
We have seen several new OEM plants under construction going slow just because the great build in China has slowed-off. This year OEMs in China will grow by only two percent. We see more retrofits now; people continue to use that to lower operating costs and avoid over-spray; use of robots is getting more sophisticated.
Q: Globally, you are the number one coating supplier of refinish. In the OEM segment and industrial paint market you are still the second. What prevents you from getting to the top?
A: Right now, we are looking at the OEMs we are under-served in, and in each one of them we have different targets. In some others we cannot get additional market share as it is already high; there are others in which our share is lower than the competitor’s. If you look at the major players in the marketplace, I think, it’s hard to have a big share shift. We all have similar technologies; we all match up. We must see how we can match up with the OEMs’ technologies in their plants. I don’t think we will see any major shift by any one OEM supplier in the next few years; you might grow a little bit with one, or drop a little bit with another.
Q: You have your business in five broad regions: North America; Latin America including Mexico; China; East and South Asia; Europe; Middle East and Africa. Any update on this?
A: What we have done differently in the last two years is to begin to merge the North and South Americas into one region mainly for the big growth in Mexico. When we look at South America – Argentina and Brazil – we run that as one part from a common technology platform. So we really look at the American region as one piece.
Q: Any new geography for you; have you left out any?
A: We are growing the fastest in the Asia-Pacific (APAC) emerging market, China, and anything else out of China. We think the major organic growth in the world would continue to come from that region. So we are putting more resources there than in the almost mature European or North American platforms.
Q: The APAC region contributes about 15 percent to your revenue. Your target was to raise it to 25 percent in five years. How do you plan this?
A: Half of the growth would be through organic and the other half through acquisitions.
Q: Does Axalta continue to work on primer-less process. Many customers may not want it. What is your experience globally?
A: We continue to work where we can eliminate steps and consolidate the process. We have some OEMs interested in primer-less for certain models. But most of our business would be primer-less only if they are building a new plant or have some major renovation. For competitiveness we are introducing direct-to-metal; it eliminates corrosion and reduces one step in the process. We are introducing this to India now.
Q: There are two new trends; one is to take these consolidated processes and make them equal in terms of appearance, performance and robustness to a conventional paint system. Second is to lower the baking temperature, useful in alternative substrates like plastics, carbon fibre, etc. Which one do you think will evolve in future and stay for long, and why?
A: Those are just trends on productivity; both will continue to be part of the future. People are looking to take out steps and reduce operating costs. More plastic parts in cars are clearly coming. We do see a trend of Tier-1s painting more parts that go on the car. Having a high-bake process for the car and a low-bake technology for the other parts causes issues in colour match. The key is to have harmony between the parts that get painted somewhere else and the parts painted by the OEM. The trends won’t be one over the other; both would continue together.
Q: Would Axalta focus more on any particular aspect?
A: We work uniquely with each OEM as each one has a different view of what it is trying to achieve. It depends on where in the world they are. Ford in China has very different priorities from that in North America. GM, on the other hand, is very focused on eco-primer appearance with a pretty good handle on colour and clear-coat. So every OEM differs in what it is driving at. We must be competent in all the trends to match expectations. All are after productivity in everything, from appearance to operating cost, to being able to be harmonious around the world. But they are different in their priorities.
Q: Axalta has been insisting on sustainability. Which route, you think, is more sustainable? Would you recommend that to the OEMs?
A: We envision the paint shop of the future as being water-borne, well on wear, developing a water-borne clear-coat, and evolving continuously. Majority of OEMs still don’t use it because of appearance. We would look at high solids, lower operating temperatures in the paint shop, a paint shop with a smaller footprint to get the primer on, faster pre-treat/eco; all these would drive sustainability. There will be less rework on the back-end with five to ten percent of vehicles coming around.
Q: Every region in the world has a different list of solvents they think are the most harmful to the environment and humans. How do you manage these specific requirements?
A: We make an exempt solvent that considers needs specific to a particular market. For example, before water-borne, countries like South Korea had a VOC policy with an exempt formula; now they are aiming at hundred percent water-borne technology by 2020. We will cater to different markets and accordingly make products for them.
Four percent of our sales go back into R&D, with about 1,500 people spread equally across the world working on innovative products. We have a Tech Centre in India that builds fit-for-purpose products for the local market and certain water-borne products for the Indian market. We consider the value proposition and the cost to adapt products to whatever the market needs. Solvent is a good example of many countries going in for exempt solvents because from a greenhouse standpoint they are more environment-friendly than the standard ones. The long-term view is that this is a transition to get on to water-borne processes. Sometimes it was given, not so much for the paint manufacturers, but for the end-customers to evolve. For example, in a body shop, to switch from solvent-borne to water-borne might be a $30,000 investment. Some shops can’t afford that, we help in a long-term transition.
Q: Since a decade, globally colour has been very neutral; do you see a change soon with the return of colour preferences?
A: I don’t see a change greater than 75 percent as the car colours in the world are white, black, silver and grey. There were deeper, richer colours with different pigment properties, but I think you will see the predominance of the four colours that the world likes on its vehicles. The paint in the four colours will continue to evolve to be more luxurious with different properties like day versus night; things like that.
Q: With millennials coming in and influencing the market, are you getting enough signals from different markets for colour schemes?
A: It varies among OEMs. We have a couple of them that are more radical in their colour selection; FCA is an example; whereas other manufacturers stick to standard norms; co-ordinating colour changes would continue to be a part of it.
Q: You have a global team that comes up with the colour changes but with the millennials and changes in mobility, do you think you will have to modify your team?
A: We do have young people in our teams around the world engaged in colour development and design. There is much more going on around colour marketing now; we will continue to use external resources and work with OEMs and customers. The reality is that with 95 million cars being built a year in Europe and the US, cars bought by millennials are going to be less than a million; it is very small.
Q: Don’t they make an impact?
A: They do, but it’s generational. It’s not as fast as you might think. For millennials, it is a phase; they don’t carry those trends for life. The real question is what is their lasting influence? OEMs have always had dialogue with them to ascertain likely trends.
Q: According to industry experts coatings help light weighting marginally, by cutting down different substrates or by achieving same film properties at lower total film thickness. What is the update on your light weighting programme?
A: Light weighting is a big deal because weight is weight and reducing it is always accepted as it affects the miles per gallon. Every one of the OEMs is using plastics and carbon fibre for weight reduction; it will continue to be the major area of focus for cars, especially with electric cars. A lot of the car under-body is changing from steel to plastics.
Q: Do you play a major role there?
A: We play a major role; we don’t see that letting up. That will continue to be the number one thing we
Q: You have been working to reduce the baking temperature as it helps customers conserve energy. With Harmonised Coating Technology (HCT) you could achieve 140 Degree C. What is the latest on this?
A: We will continue to work: to get temperatures lower than 140 Degree C; on coatings that require minimal amount of energy to help OEMs get faster through-puts and lower operating costs; on retrofit shops and paint booth manufacturers; to introduce newer technologies using UV, which gives very little heat for re-finish.
Q: To what extent does the Tech Centre help Axalta India in penetrating the Indian market?
A: We have had a lab in India for the last eight years; have upgraded it in the past 24 months by investing in more people and equipment to give it additional capability. Due to this we have won a lot of business since we have the technical application capacity; it has helped us tremendously. Customers want quick turn-around times now, so it involves not only developments in Chemistry but also quick deliveries on panel-wraps, in many cases less than a week. This is extremely important in all markets outside of OEMs.
Q: What is very special about this Tech Centre?
A: One thing about us is that we are consistent around the world. That’s because we do share information back and forth using video conferencing and other tools. We have the strength to get it all together and cater to the markets real-time. We do colour development 24×7, 365 days a year. In fact, a third
of our lower re-finish colour is done out of China, and industrial colour in Europe. All this helps in reducing turn-around time.
Q: What is the contribution from India Tech Centre to Axalta globally?
A: Most of the work done by the lab here is for the Indian emerging markets. Mt Clements in Michigan, USA, Shanghai in China, and Wuppertal in Germany support this lab. We don’t turn-around and send stuff back from here. As we get deeper into industrial markets we have been able to develop this real-time for customers; we have people here to do it. The conditions in emerging markets like India and SE Asia are very similar. There is a natural extension from India to the Middle East, North Africa or SE Asia. Lots of people working in these regions are from the Indian sub-continent and conditions are similar.
Q: What about the progression to high solid, 3-wet systems by OEMs in India?
A: Right now, I would say the progress is very slow. That is an area we will have to continue to work with the OEMs.
Q: What are the impediments?
A: One is that we need legislative support to fix things. Helping OEMs reduce operating costs would entail changing some parameters, like making dimensional changes in the bays inside the factory, which they would be reluctant to do. These impediments are not just in India but around the world where OEMs would not undertake any upgrade but would do it in five years. Dearborn, Michigan has 50 plants; only recently were its paint shops upgraded, though we had asked for it two years ago. All upgrades need infusion of capital, so that is a problem. Even if it is a good project, OEMs will wait for the government to tell them to do so. It’s a question of priorities; it will always be an on-going effort.
Q: In India, you have been focusing on ‘Refinish’ and the OE business is quite low. Why is that? Have you been able to make inroads into this segment?
A: Our first focus in the Indian market was Refinish. That is a business where we are number one in the world; we are comfortable with that. When we started going in for the OEM business, we had this change where we moved to DuPont, but it was never a priority with them; their general view was India was not a place to invest in. With Axalta we knew to invest more in India to go for the OEM business, but it takes a couple of years to design and build a plant to get ready for it. We based our decision to invest in India on OEMs like Honda coming into the country.
Q: How will be the next five years for Axalta in India?
A: There would be lot of opportunities for us to grow in the OEM transportation segment. We see the improving aesthetic quality of cars, trucks and buses offering more prospects in finishing. We will see the coming of more manufacturing into India, which means new customers to cater to, as industry moves further towards water-borne. The next five years will be a great opportunity for team Axalta in India.