Three large suppliers dominate the global market for original-equipment automotive paint -- and the auto industry is content to leave it that way.
Auto-paint plant lines are too complex and expensive to consider introducing new suppliers, say paint industry leaders.
As a result, the top three industry coatings giants -- PPG Industries, BASF and Axalta Coating Systems (formerly DuPont) -- have become too big to fail.
"When you look at a car plant, one of the most significant investments is the paint shop," says Christopher Toomey, senior vice president for coatings solutions for North America at Ludwigshafen, Germany-based BASF. "No plant manager wants their plant shut down because the paint shop isn't working. The pressure ratchets up in a hurry."
The actual cost of paint on a car is small, representing 3 to 4 percent of the vehicle's total value. But the paint shop is one of the most complex elements in a vehicle assembly factory and can come with a price tag of $400 million or more.
The multistep process of dipping, spraying and baking gobbles up huge amounts of energy, water and floor space, making the paint shop a major chokepoint in the manufacturing process if trouble hits. And carmakers demand a continually evolving kaleidoscope of new, fashionable colors that are durable and can be applied with maximum efficiency and minimum environmental impact.
As a result, the three paint supplier leaders hold sway over a $10 billion business to a degree found in few other sectors of the supply base.
There are smaller players. Nippon Paint and Kansai Paint of Japan have global operations but are primarily active in Asia. And Hemmelrath Coatings of Germany is a regional player with some North American activities.
Automakers benefit from the size and global reach of the giants, says Steve Markevich, president of Transportation Coatings and Greater China for Axalta Coating Systems in Philadelphia.
"You're dealing with very large, sophisticated customers with the OEMs," Markevich says. "These guys are all global. They're looking for a supply base that can serve them and do color development, work with them as they expand into China and the BRIC countries."
Industry trends will drive even more business to the paint leaders, predicts Eric Fedewa, analyst for IHS Automotive. Chief among them: global vehicle platforms, faster product cycles and more diverse manufacturing locations.
"If you're a procurement operation, you want to work with a global partner who can service you wherever you are," Fedewa says. "If you have a paint shop in Germany attached to a BMW facility, you want the same configuration wherever you are in the world."