Automotive hose suppliers are used to dealing with high pressure situations, but nothing like the kind of pressure the recent launch of Valeo's "UltimateCooling" technology might put on them.

UltimateCooling supersedes conventional units that are based on numerous independent cooling systems. Each serves a separate thermal function, such as engine cooling, air conditioning and oil cooling. Each requires separate radiator and specific controls as well as numerous individual connecting hoses.

Valeo's new system employs a single radiator design using water as the only coolant.

Tucked away in Valeo's description of the system is an important message for hose suppliers: "the elimination of 70% of the costly high-pressure fluid hoses found in today's engine bays offers carmakers further potential cost savings."

To ram the message home, Valeo also notes: "drivers of cars employing the UltimateCooling concept will also benefit from increased reliability and reduced noise due to the elimination of all high-pressure hoses, such as air conditioning, charge air and oil. The risk of environmental damage resulting from hose leakage is greatly reduced due to the complete elimination of most of these hoses."

Valeo is confident

Thierry Morin, Valeo's chairman and CEO, acknowledges acceptance of the new concept may be some time away, but his confidence for the medium term is high.

"Initial customer feedback to this revolutionary thermal concept has been very good," he says. "In 10 years' time such systems may well be specified as standard equipment by all carmakers."

For suppliers in the €2.4 billion European automotive hose market the stakes could be high. Industry estimates suggest the current European market is split into four key areas: air conditioning lines, worth €630 million; heating/cooling (€500 million); fuel lines (€500 million); and charger hose (€200 million). The remaining chunk is split among other applications including oil and hydraulic hoses.

They would be equally high outside Europe, too. The NAFTA and Asian hose markets are valued at €1.8 billion and €1.2 billion respectively.

For the moment, suppliers to the European market at least appear relaxed about short-term prospects. Sales growth is being driven by increasing penetration rates for air conditioning, the growing share of diesel engines in new-car sales and increased use of turbochargers.

Rubber is also being increasingly used in preference to plastic in a number of applications.

Specialisation among suppliers is becoming more noticeable as synergies between different fluid transportation applications recede.

Leading suppliers in one area are often small players in others. For example, Hutchinson has around 30% of the heating/cooling hose market in Europe but is a modest player elsewhere.

Eaton's Aeroquip leads the air conditioning line segment with a share of 25% but is a minor player elsewhere. Manuli makes only air conditioning hoses, holding a 12% share.

Exceptions include ContiTech, with significant stakes in all four key applications; Veritas, which leads the fuel line segment and has 28% of the charger hose market; Phoenix, with a 21% share of the heating/cooling sector and 40% of the charger hose market.

Restructuring has started

Some sector restructuring is already evident. In early December, Trelleborg acquired Metzeler Automotive Hose Systems, which has sales of around €64 million, for €31 million. The Metzeler business makes components and systems for engine cooling, vacuum and air supply applications and will expand Trelleborg's business outside of its traditional and strong French base.

In contrast, Phoenix has disposed of some businesses, particularly in the industrial hose area, but remains committed to its automotive fluid handling businesses, which generated sales of €171 million in the first nine months of 2003, up 5.8% from the same period in 2002. Fluid handling activities also generate the highest margins for Phoenix.

Phoenix competes in all of the four key automotive hose markets either as a tier one supplier (cooling hoses and fuel systems) or tier two (air conditioning). But it dominates the charged air segment in Europe with an estimated 80% share in the high value truck application sector and 40% in the light vehicle sector.

Phoenix has been a big winner from the trend towards turbocharged passenger car diesels in Europe in the last two years.

But Valeo's UltimateCooling concept, if widely adopted by OEMs, has the potential to drive major changes in the sector, including further major restructuring. It is also an example of the complex interdependency within the multi-layered automotive supplier base, whereby a radical new concept developed by one supplier can have significant implications for others, even those not regarded as direct competitors.

Although the fuel line market segment may remain secure, the future for the mundane rubber hose in other applications has probably become less certain.