InterviewUS plastics suppliers who survive will grow - CAR

21 May 2009 17:21  [Source: ICIS news]

HOUSTON (ICIS news)--Automotive plastics suppliers that can survive the current US market turmoil could find plenty of opportunities for growth in 2010, the CEO of the Center for Automotive Research (CAR) said on Thursday.

If plastics suppliers can make it past the current bout of creative destruction befalling the automakers they depend on and that’s a big “if”  they might see growth coming from automakers’ traditional foe, environmental activists, and their drive for higher fuel efficiency, CAR CEO Jay Baron said.

But with automaker Chrysler in bankruptcy, and General Motors (GM) on many analysts’ bankruptcy watch and slashing production to stay solvent, plastics suppliers will have to focus on surviving the next year.

“The buzzword right now in the industry is hibernation,” Baron said in a telephone interview. “A lot of suppliers are wondering, 'Can we get through the next year at one heartbeat per month?'”

GM, Ford and Chrysler have struggled as demand for their products plunged 19%, or 3m units, to 13.2m units in 2008. Sales at Chrysler, the smallest of the three, were down 55% for the year, according to information from automotive consultancy CSM Worldwide.

Analysts have said that even after Chrysler gets back on solid ground, US plastics suppliers could see a shift in the supply chain. That’s because Italian automaker Fiat, which will acquire a 20% stake in Chrysler after the Auburn Hills, Michigan-based automaker emerges from reorganisation, could swing its supply chain closer to Europe. 

In the wake of a market where stagnation seems the new normal, demand for automotive plastics such as acrylonitrile-butadiene-styrene (ABS), polypropylene (PP) and polycarbonate (PC) has plunged, along with prices.

The good news is that the long-term future looks a bit brighter, Baron said, because automakers are facing an increasingly environmentally conscious government and buying base.

On 19 May, the Obama administration said it would advance the schedule for increased fuel efficiency for automobiles to require an average of 35.5 miles per gallon (mpg) (15.1 km/litre) by 2016.

As automakers look to increase the fuel efficiency of their fleets  known as the corporate average fuel economy (CAFE) in Washington-speak  many are expected to lighten their vehicles, making plastics or composite parts more attractive when compared with steel, Baron said.

“With the CAFE requirements, cars have to get lighter,” Baron said. “You’re going to see more carbon fibre and more reinforced plastics like that. And as cars get smaller, that means the amount of materials in a vehicle will go down. So the variable cost between steel and plastics disappears as the parts get smaller.”

That will bring new business to suppliers, Baron said, but only for those that can survive a year or two of chaos.

“Can they get through the short term to enjoy the long term?” he asked. “The industry is getting smaller. There are a lot of suppliers that are going to go bankrupt before they get to enjoy the future benefits.”

For more information on ABS, PC and PP, visit ICIS chemical intelligence
To discuss issues facing the chemical industry, go to ICIS connect

By: Ben Lefebvre
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