After two years of churning and turmoil, there is light at the end of the tunnel for the U.S. automotive glass aftermarket. The market is expected to see its revenues rise in the year 2000, ending a two-year decline.
Although profit margin pressures are expected to remain, the market is forecast to see prices rise in the coming years, thus stemming the tide of price compression it has been weathering since late 1997.
The market has been through some tumultuous times because of severe cost pressures that have resulted in companies at the manufacturing and distribution level, downsizing, filing for bankruptcy, or leaving the market. In other words, the market has seen developments that are expected to have far-reaching effects.
One of the companies hit hardest by price compression was Safelite Glass Corp, which filed for bankruptcy in June 2000. In its Federal bankruptcy filing, Safelite claimed to have $US591 million in liabilities and $US550 million in assets. The bankruptcy filing was prompted by the refusal of a consortium of banks to postpone default on a $US388 million loan.
“the biggest saviour for the industry will be technology“
Meanwhile, PPG took control of Apogee Enterprises#; Glass Depot and formed a new joint venture, PPG Auto Glass LLC. The joint venture was an outcome of PPG#;s interest in Glass Depot#;s excellent distribution network and its standing among the independent installers.
PPG is not alone in turning to strategic alliances to improve revenues. Pilkington, which has grown in the US market through consolidation, announced that it was negotiating yet another joint venture. In 2000, Pilkington said it was negotiating a joint venture with Visteon Corporation, which would result in the UK-based glassmaker assuming majority ownership and management control of Visteon#;s glass business. The discussions include all Visteon glass operations, the Carlite and OEM and architectural glass.
Competitive price pressures have not only forced manufacturers to reduce fixed costs and trim margins, it has also affected distributors and retailers. For example, Apogee Enterprise, Inc., which is engaged in auto glass distribution through its Harmon AutoGlass service centers and Glass Depot wholesale centres, has closed many retail facilities, reducing employee numbers. The company closed approximately 50 retail facilities by the end of February 2000, and reduced its field staff by about 2% and the auto glass headquarter staff by about 13%.
The consolidation trend, both at the manufacturer and distributor level, is expected to continue in the coming years, especially in view of shrinking margins and the growing influence of insurance companies that seek to reduce costs by outsourcing automotive glass claims. The opportunity to merge operations, to improve capacity utilisation without increasing fixed costs will enable companies to be more competitive.
However, the biggest saviour for the industry will be technology. There is no doubt that automobiles are becoming more of a communication vehicle, with e-mail and internet access. In the future, car owners may be connecting with their mobile phone service, global positioning systems and even e-mail through their windshields. That would be a boon for automotive glass manufacturers.
Total Automotive Glass Aftermarket: Unit Shipment and Revenue Forecasts (US), 1997-2006
Revenues ($US billion)