These are unprecedented times for the global automotive industry, and the companies that serve it. We take a look at some of the effects the coronavirus pandemic has had on this important market for polyurethanes, both in the short-term, and those that may prove more longer-lasting.
The numbers are astounding. In February 2020, passenger vehicle production in China, the world’s largest market, fell by 80%. In March, it recovered somewhat, with production at about 49% of the level it was in March 2019.
As the coronavirus lockdowns bit later in Europe, the fall was 80% in April, and a mere 58% in Western Europe in May. In normal times a 42% annual fall in a market would be seen as calamitous. In May, it was something of a relief.
While this information from consultants LMC Automotive illustrates the very short-term shock of the pandemic on automotive production, its ability to guide about what might happen in the rest of the year is negligible. Neither does it highlight the longer-term impacts on our economies, or the public’s willingness to buy expensive items like cars.
In early July, LMC was suggesting that car production globally in 2020 could be about 26% lower than it was in 2019. By the end of that month, they had crystallised the figures a little more. The selling rate of cars in the US in June 2020 was 26% lower than in the same month last year, while in Western Europe, numbers were down by 27%. They claimed that the recovery is set to continue. ‘Growth will moderate as we approach a lower level of sales than in 2019,’ they added.
In contrast, Korean sales were up 46% on the same month in 2019, partly because of a tax cut designed to boost the economy. Meanwhile, LMC characterised the Chinese situation as a V shaped recovery in a short time scale. ‘Sales are expected to approach 23m units this year,’ they said.
If the rate of sales globally in June had been the same for every month in 2020, then the market would be the same size as it was in 2011, when 76m cars were sold. But, the consultants point out, production capacity for cars is 40% higher now than it was back then, and plant utilisation remains very low.
In its first half business report in late July, French auto interiors company Faurecia suggested that automotive production in 2020 could be about 64m vehicles. That would represent a drop of 22.6% on the number built in 2019, when it estimates 85m vehicles were built. The company believes that in 2022 between 76m and 85m vehicles could be built. By 2024, the number could have recovered further, to 85m and 91 million vehicles.
LMC is slightly more bullish, stating that global automotive production in 2019 was 88.8m units, and about 71m cars and other light vehicles could be built in 2020. They forecast that this might rise to 82.4m in 2021.
Whatever level of automotive production actually transpires this year, it is clear that some of the larger Tier 1 supplies to the OEMs are looking at ways of making their businesses the right size for the future. For example, speaking at a Deutsche Bank investor day Adient’s Doug Del Grosso said: ‘We are expecting markets to be down, we [aim] to reduce our breakeven point to have positive cash flow in 20% down market.’
He added that, in the post coronavirus environment, the action the company is now taking to improve its break-even cost will enable overall margins to improve, and he expects they will be able to deleverage as production returns. ‘We have taken coronavirus as a catalyst for us to move quickly and drive our cost structure even more aggressively, because we are anticipating that buying will be down and we have to be able to respond to that,’ he said.
Lear’s president and CEO Ray Scott also spoke at the Deutsche Bank event. While he did not directly discuss likely levels of production in 2020, he did say that the coronavirus pandemic had changed the shape of his company’s order backlog.
‘Overall, there have been delays, these have been pretty modest – mostly two to three months,’ he said. ‘I think a lot of [those orders] will shift into next year’s backlog. Perhaps there will be some offsets to next year’s backlog, because industry volumes look like they will be a little softer than what we have projected for next year.’
However, Lear started 2020 strongly. ‘First-quarter gross growth was strong at 11%’, Scott said. ‘North America was particularly strong for as in both segments in seating we were nine points above the market.’
He added that growth in popular models helped. In 2019, he said, the Ford Explorer seating programme was updated, and his company was benefiting from that in 2020. ‘Even though the market is likely to be down in North America this year, the Explorer is likely to be flat, or constant relative to the market, those things helped us in the first quarter,’ he said. ‘They will continue to help us for the balance of the year.’
Want to buy a motor?
Underlying this year’s coronavirus-induced stress is the continuous pressure for change from regulators, which greatly affects the global automotive industry. In particular, there is a move towards greater penetration of electric and hybrid vehicles into the marketplace, driven by the need for car makers to reduce emissions from their fleets, and also individual models. In the absence of scrappage plans and other post-virus market stimuli, car makers welcome enforced obsolescence. It is one way to get consumers to change to innovative models.
But the fundamental question is whether, as the coronavirus-shock plays out, do consumers actually want to own cars? Perhaps the coronavirus pandemic and its lockdowns are pointing to the way that car ownership might change over the coming years.
One of the big winners of the lockdown has been bicycles, and many European cities have launched pop-up bike lanes. According to a report in Urethanes Technology International’s sister paper Automobilewoche, the highest-ever single-month sales figures were reported by the bicycle industry in May 2020. ‘Our new registrations went through the roof in some cities,’ said Mareike Rauchhaus, spokesperson for bike rental firm Nextbike. ‘We are reaching new user groups who might not have had the bike on the screens without a crisis.’
Jasher Seyfi, Germany boss at Lime and e-scooter and bike provider, said: ‘It was interesting to see how quickly our bike shop picked up again, and how much stronger the bike is now compared to pre-coronavirus times.’
But in the automotive space, according to Automobilewoche, car sharing has become ‘a clear winner’. Tom Gould director of design & technology at Adient, said: ‘Before coronavirus came along, we produced some demonstrator show vehicles. This was spurred on by the idea that shared vehicles could become a bigger part of people’s lives.’
He said that although using robotic vehicles make these business equations look much better, over the past year the date for the introduction of these vehicles has moved out.
A further issue raised by the pandemic is a growth in concerns about sharing vehicles. Coronavirus has shaped research at Adient as a result. ‘We are looking for solutions that will kill the virus or microbes on contact or through other processes,’ Gould said. ‘How do you make the materials more resistant to cleaning and the bacteria?’
Keep it clean
Esther Quintanilla, Dow Polyurethanes’ global & EMEAI mobility market segment leader, agrees with Gould. ‘Products that are easy to clean, and with more durability, are more important than ever,’ she said. Her company recently launched a mobility science platform to make the company’s diverse offering of materials even more accessible to the automotive industry.
Galen Greene, marketing manager at Covestro, believes that, despite the current setback, shared mobility will be a game changer. ‘The benefits of polyurethane will increase over time,’ he said. ‘A shared car today is typically similar to a car someone would buy. Fleets of shared cars, such as DriveNow, are made up of cars you could buy for yourself. It is not a major disrupter in terms of interior components today. But as we move to completely autonomous cars, where the car becomes a relaxation, work and entertainment area, we see a big step change where there are opportunities for our materials.’
This view is reflected by Irina Bolshakova, market manager for automotive and transportation in EMAI at Huntsman. ‘It is too early to see a real trend toward simpler or cheaper cars,’ she said. ‘It is not a secret that everybody in the automotive industry reduced production volumes.’
However, she added there are two positives. ‘First, Germany and France are giving subsidies for electric vehicles, and we expect more to come,’ she said. ‘Secondly, OEM and consumers will welcome these, and will react. All our work in electric vehicle technologies is continuing at the same pace as before the COVID shutdown.’
While autonomous driving is still in the concept stage, changes are coming. ‘Riding a car could be like sitting in a plane or train, more soft and predictable,’ Covestro’s Greene said.
Fully autonomous level 5 cars could receive a big boost if Germany passes the legislation that is being contemplated there, which would allow them to be used in a number of closely defined roles. Brent Hodge, director of foam engineering at Adient, believes it will be cost-prohibitive for individuals to buy their own autonomous vehicles, because of the cost of the equipment. ‘But the costs of sensors and key equipment is falling,’ he said. ‘It is coming, and it will happen some day. But we will share vehicles for some time, if we continue to live in towns and cities.’
Once Level 5 becomes a reality, with the vehicle is managing the drive all by itself, vehicle architecture may well change dramatically. ‘That’s where designers start to look at how people behave as passengers and not as drivers,’ Hodge said. ‘For us, from a seating standpoint, it ups the ante. Our seats move from being a comfort and safety system within a car you are driving, to more of a command centre. The seat will bring the driving to you, and will help you to personalise the car. Simple personalisation will be important if the car is shared.’
His colleague Gould agreed. ‘The functionality we are seeing introduced today is about occupant convenience,’ he said. ‘Several model introductions in the past year feature at-seat massage. I had not heard of that three or four years ago in the US.’
James Paul, global marketing manager at Evonik, explained that just a couple of years ago, there was optimism that we would go from level 2 – current Tesla technology – towards highly or fully autonomous vehicles at level 4 or 5 within a realistic timetable. ‘Now I think things will be pushed out a little bit,’ he said. He pointed to the way some OEMs are now doing some things differently. ‘For example, the Ford F150 pickup has the option to have a fully reclining seat, and allows users to rest or sleep properly in the cab.’
However, he does not think this will become mainstream, and the idea came from a Ford user poll. ‘Many people wanted to use their vehicle for camping or sleeping when away from home on a job,’ he said. ‘Ford os trying to emulate a first-class airline seat in the trucks.’
Covestro’s Greene said that, despite the fall in sales, car-makers will push ahead with strategically important research. ‘The new fuel economy standards in Europe are still coming; there’s been no announcement to delay them,’ he said. ‘Some OEMs seem to be more in favour of stimulus instead of delays; maybe a cash-in programme to get old cars off the road.’
He added that everything seems to suggest they will stay fully invested with this e-mobility strategy. ‘They do not want to drop the products that would come onto the market in three to five years’ time when investment today would be realised because environmental requirements are getting stricter,’ he said.
‘We are now in the midst of OEMs working to meet the 95 g CO2/km standard for 2021. The next big drop is scheduled for 2025. To 81 g CO2/km. By 2030, it will be 59. Car-makers in Europe have to invest to hit this. E-mobility would be one of the last development topics to be cut.’
While car-maker’s longer-term strategies may be driven by legislation, in the short term, economic uncertainty caused by the unwinding economic shock of coronavirus on consumers could change the way that cars are built and specified in the future.
Huntsman’s Bolshakova believes that in the future we could be talking about much more sustainable materials. ‘It is becoming critical part of automotive agenda,’ she said. ‘There could be a change in focus in the auto companies. Almost every earnings report or investor report today has about one third of the content dedicated to the environment and sustainability.’
In late July, Autoneum announced Autoneum Pure, a labelling system that identifies products with a high proportion of recyclable materials, or those that achieve significant weight savings compared to similar products.
The majority of the products are in noise and heat protection applications, which the company says demonstrate excellent environmental performance throughout the entire product lifecycle. ‘It allows vehicle manufacturers to identify at a glance which products are most suitable for use in future, environmentally friendly models,’ it said.
Covestro’s Greene said that his company has brought a number of sustainability developments to the automotive industry. ‘These include CO2 Cardyon technology,’ he said. ‘We’re working on that when looking at alternatives in the short-term. As well are somewhat upstream projects which are looking at bio-sources and bringing in chemical recycling to bring waste in. These are very important topics for us as a company.’
However, he said, is too soon to say exactly what OEMs will do to ensure their vehicles are affordable. ‘We see consumers being cost conscious as people’s income is being hit because of coronavirus,’ he said. ‘The question is, “What do they give up?” as they try to save money.’
Evonik’s Paul suggests there will be more model rationalisation. ‘We will see OEM’s further focus which vehicles they produce and eliminate some models,’ he said. ‘A lot of OEMs have been hit hard. Many were in the process of changing from internal combustion to electric vehicles; some of their plants were already at very low use levels. When you add coronavirus with reduced consumer demands, it is putting more pressure on them, and many will be considering where to invest their money.’
Quintanilla from Dow points to several possibilities: ‘Each OEM has different strategies,’ she said. ‘Some OEMs believe making the battery cheaper dictates the value to the rest of the platform. The question is about material winners and losers. I like the concept of the ABC car which is affordable but cool. I think that we see a lot of PP inside, but PU can be one of the winners for future because of its durability, acoustics, low emissions, light weight and versatility versus other materials.’