What the current crisis at VW means for the coatings industry
The German weekly magazine “Die Zeit” wrote this week, “a small environmental organisation exposes the machinations of VW – and an entire industry is thrown into doubt”. Yes, I too think it's bad that a company like VW apparently cheated to meet standards and then boasted about meeting those same standards. VW scored a succès d'estime with its “clean diesel technology” in the USA, helping to boost the image of what is considered there to be dirty technology. That success has evaporated now. While the crisis will certainly have an impact on the automotive industry and perhaps on German engineering in general, which is admired all around the world, will it also have drastic effects on the coatings industry? I don’t think so – at least, not in the long term.
Few diesel cars in the USA
Let’s run some figures: 16.44 million new cars were registered in the USA in 2014. Yet the proportion of diesel vehicles is marginal. In the same year, just 102,203 diesels made by VW, General Motors, Daimler and BMW vehicles were registered there. The bulk of these (80,441) came from Volkswagen, touting its “clean diesel” technology. Worldwide, VW shipped 10.14 million cars in 2014, making it the second largest carmaker behind Toyota. Volkswagen accounts for 13.55% of all cars made around the world.
VW will lose credibility, but that won’t stop cars being built
The markets in Western Europe and USA are relatively saturated and OEM coatings are forecast to grow by just under 5% by 2018. The real action is happening in China, but even there growth is not as rapid as it once was. Consider ownership numbers: in the USA, 918 people per thousand own a car while the figure in Germany is 614. In Brazil, it is 176 in every thousand and in China 86 per thousand. If ownership levels in China were to reach those of Brazil, that would be approx. 120 million extra vehicles. So there is a good reason why global paints manufacturers have increasingly set up manufacturing facilities in China.
Losses possible in the short-term
If VW sales actually decline as a result of this crisis, that will of course have direct implications for the coatings makers that supply VW. From what I hear, they are playing a game of ‘wait and see’. Other industry experts believe that sales will probably not decline all that much, given that, in Germany, for example, there are tax breaks on diesel vehicles and diesel engines are more fuel efficient. My take at the moment is: huge reputational damage has been done to VW and some to the industry, but cars are and will remain a popular luxury item around the world. Vehicle numbers will continue to rise, although VW’s share of those numbers will be slightly lower for a while.