March 1, 2008
It’s hard to remember a time when the North American automotive industry was this turbulent. The Big Three are now known as the Detroit Three, largely because the adjective “big” has been replaced by “downsized.” On the other hand, Japanese automakers with North American facilities, called the New Domestics, are posting accelerated growth numbers. Now stir in a heaping dose of private equity pressure, and you have a unique recipe for fast-paced change.
The underhood auto components sector feels the effects of this new milieu as much as any of the other subsets within the auto market. In fact, it may rank as the number one driver behind a renewed interest in plastics-intensive front-end modules, air-intake manifolds, and integrated fuel and oil system components.
While automotive plastics suppliers are among the most beleaguered in terms of margins, they continue to remain at the forefront of innovation in replacing metal and higher-cost thermoplastics underhood. Consider these recent achievements:
• An engine cover integrated with an air filter for DaimlerChrysler’s V8 engines, developed by Mahle Filtersysteme in Germany and molded from a 30% glass-filled PA 6 (Ultramid B3WG6 GP, BASF) with enhanced resistance to bursting pressure.
• A heat-stabilized PPA air-intake manifold in the 4.2L diesel motor on the Audi A8 that withstands intermittent temperatures of 250°C, exhaust gases, and fuels (Zytel HTN 52G35HSL, a 35% glass-filled PPA from Dupont). It replaced a metal part weighing two times more.
• A 1m-long rocker cover with heavy ribs on the underside to reduce resonance and sound radiation, molded for a six-cylinder MAN truck engine (Munich, Germany) using 15% mineral/25% glass-filled PA 66 (Technyl A218 MT15 V25, Rhodia Engineering Plastics).
• A flexible engine shroud fan cover that resists oil and chemicals at engine compartment temperatures, consisting of a TPV (NexPrene 1087A, Solvay Engineering Plastics) overmolded onto a rigid nylon retaining ring.
• An integrated motor, impeller, and electronic control system housing for an electric water circulating pump for static heating systems and supplementary cooling of high-performance engines, molded from PPS (Fortron, Ticona) for its ability to resist antifreeze-water mixtures at operating temperatures up to 140°C for extended periods.
Of course, these are only the tip of the iceberg. Most breakthrough developments in the automotive industry go unreported, for the most part because automakers tend to be wary of releasing information due to competitive pressures.
Assessing the situation
According to PricewaterhouseCoopers’ Global Automotive Financial Review released in October, the North American market will stay buoyant, even in the face of increasing regulations and harsher competition. The PwC report forecasts a rise in the assembly of light vehicles to 16.2 million units in 2014 vs. the 15.3 million units assembled in 2006, for a compound annual growth rate of approximately 0.8%.
Almost all of the added 1 million units will come from localized assembly of previously imported vehicles by the New Domestics. For instance, PwC says that Toyota currently has two facilities under construction in North America with a third plant to build subcompacts under study, while Hyundai and Honda are expected to expand their capacity footprint in North America as the Detroit Three continue to rightsize themselves to a changed market.
Unfortunately, researchers also say that Mexico remains the only significant demand growth market in North America. Automotive-related investment over the last two years exceeded $3 billion there, and Mexico exported more than 1.5 million vehicles in 2006, about 500,000 units more than its domestic sales for the period.
And what about the Tier suppliers? According to PwC, automakers have forced cost-savings mandates down the supply chain even as materials prices reach record highs. As a result, supplier margins are so thin that the reduced volume of business has put many in the red. This, in turn, is forcing a restructuring among suppliers, many of whom are being purchased by private equity buyers. Witness the growth of private equity in automotive, says the report, from high-profile acquisitions in the supply sector to taking a majority stake in Chrysler.
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