OPPORTUNITIES FOR ADVANCED TECHNOLOGY NONWOVENS IN AUTO INTERIORS AND EXTERIORS

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1 OPPORTUNITIES FOR ADVANCED TECHNOLOGY NONWOVENS IN AUTO INTERIORS AND EXTERIORS PRESENTED BY: BOB ELLER ROBERT ELLER ASSOCIATES, INC. Akron, OH (USA) PRESENTED AT: TECHTEXTIL SYMPOSIUM NORTH AMERICA 2006 Atlanta, GA March 31, 2006 B/mydocs/papers/techtex06 1

2 PRESENTATION HIGHLIGHTS AUTO INDUSTRY OVERVIEW AUTO SUPPLY CHAIN IMPLOSION/ IMPLICATIONS FOR NONWOVENS NONWOVEN PATHS-TO-MARKET GLOBAL NONWOVENS DIFFERENCES COMPETITIVE MATERIALS/PROCESS COUPLES VALUE ADD STRATEGIES TARGET MODULES 2

3 SOURCES/REFERENCES ADVANCED TECHNOLOGY NONWOVENS MULTICLIENT: ROBERT ELLER ASSOCIATES, INC./JOHN R. STARR INC. AUTOMOTIVE INTERIOR SOFT TRIM MULTICLIENT: ROBERT ELLER ASSOCIATES INC. 3

4 ROBERT ELLER ASSOCIATES, INC. Technical, Economic, Market Analysis in Support of Management Decisionmaking 4000 Embassy Parkway Suite 230 Akron, Ohio (USA) Telephone: Facsimile: JOHN R. STARR, INC. Management Consultants 5150 North Tamiami Trail Newgate Tower, Suite 504 Naples, Florida (USA) Telephone: Facsimile: Opportunities for Advanced Technology Nonwoven Fabrics for Automotive Interior Surface and Construction Applications in NAFTA and Europe COATED FABRICS LEATHER BATTING (SHODDY, FELT) ARTIFICIAL LEATHER AUTO INTERIOR FIBERS AND TEXTILES MARKETS NONWOVEN FACINGS WOVEN/KNIT TEXTILES NEW LIGHTWEIGHT ACOUSTIC FIBERS FOAMS (COMPETITION/ COMPLEMENT) March

5 MARKET ECONOMIC TECHNICAL ANALYSIS Management DECISIONS Automotive Interior Soft Trim: Skins, Foams, Coated Fabrics, Textiles, and Acoustic Barriers COATED FABRICS SKINS FOAMS SUBSTRATES MODULE FABRICATION AND INTEGRATION TECHNOLOGIES TEXTILES (WOVEN, NON-WOVEN) CARPET ACOUSTIC BARRIERS REQUIREMENTS OCCUPANT SAFETY ACOUSTIC REQUIREMENTS WEIGHT ELV LEGISLATION ESTHETICS TELEMATICS INTEGRATION SENSORY SMELL INTERIOR MODULES - COCKPIT - HEADLINER - DOOR - FLOOR/ACOUSTICS - TRUNK LINER - SEATING - PILLAR COVERS CONSTRAINTS MANUFACTURING ECONOMICS QUALITY CRAFTSMANSHIP PRODUCT POSITIONING SUPPLY CHAIN MANAGEMENT Prospectus for a Global Multiclient Industry Analysis Robert Eller Associates, Inc. slide-covautointsofttrim vsd 5

6 OPERATING HYPOTHESES VEHICLE PRICES CONTINUE DOWNWARD THE SUPPLY CHAIN WILL BE RESHAPED GLOBAL AUTOPLASTICS/TEXTILES TECHNOLOGY CONVERGENCE (U.S. 3-5 YEAR LAG BEING REDUCED) SEVERE MATERIALS PRICE PRESSURE CONTINUES SEVERE PROFITABILITY PRESSURES DRIVE NW SUPPLIERS TO SEEK VALUE ADD STRATEGIES ACOUSTICS PERFORMANCE AND LIGHT-WEIGHTING CONTINUE AS DRIVING FORCES THE NONWOVENS MATERIALS/PROCESS COUPLE CAN OFFER SYSTEMS COST SAVINGS AND VALUE ADD OPPORTUNITIES MONOMATERIALS CONSTRUCTIONS PREFERRED POLYOLEFIN-BASED MODULE CONSTRUCTION CONTINUES SHARE GAIN PLASTOMER-BASED ELASTIC NONWOVENS ENTERING MARKET MAJOR CONSTRUCTION SHIFTS (TRUNK, FLOOR, 6 HEADLINERS, DOOR TRIM)

7 GLOBAL AUTO INDUSTRY CHARACTERISTICS PRODUCTION GROWTH 3%/YR. THROUGH 2012 DEMAND HISTORY +/- 5% OFF TREND SINCE 1970 GLOBAL OVERCAPACITY STAGNANT U.S./EUROPE DEMAND DEMAND GROWTH SHIFT TO ASIA PACIFIC MINI/SMALL CAR (B SEGMENT) SHARE GAIN GROWTH OF DOMESTIC ASIA PACIFIC OEMs SHARE LOSS BY U.S./EUROPEAN DOMESTIC OEMs HIGH U.S. FUEL PRICES CONTINUE NO MAJOR U.S. ENERGY POLICY SHIFT THRU

8 GLOBAL LIGHT VEHICLE PRODUCTION TREND LINE SALES, MM VEHICLES OIL CRISIS ACTUAL TREND PLUS 5% MINUS 5% OIL CRISIS - GULF WAR - EUROPE RECESSION '06 GLOBAL SALES, 65MM UNITS IRAQ INVASION SOURCE: GM, WARDS, ROBERT ELLER ASSOCIATES, INC., GLOBAL SALES COULD REACH 75MM UNITS GLOBAL AAG = 3%/YR. ASIA PACIFIC GROWTH %/YR.? WESTERN GROWTH STAGNANT OR DECLINE GLOBAL FLEET SHIFT TOWARD SMALLER CARS VARIATIONS HAVE BEEN IN +/- 5% BAND SINCE

9 LIGHT VEHICLE PRODUCTION SHIFT, VEHICLE PRODUCTION, (MM UNITS) USA JAPAN RUSSIA CHINA INDIA SOURCE: ROBERT ELLER ASSOCIATES, INC.,

10 SOURCE: CLEAR VIEW ECONOMICS L.L.C.,

11 PROJECTED AUTOMOBILE PRODUCTION IN ASIA: JAPAN 0.4 CHINA 4.6 KOREA 1.0 INDIA 1.4 THAILAND 0.9 INDONESIA MALAYSIA TAIWAN AUSTRALIA PHILLIPPINES VIETNAM VEHICLE PRODUCTION, ASIA (MM UNITS) 7 MM NEW VEHICLES ARE EXPECTED TO COME FROM CHINA, INDIA, AND THAILAND BY SOURCE: CSM, ROBERT ELLER ASSOCIATES,INC., 2006

12 AUTOPLASTIC SUPPLY CHAIN IMPLOSION PETROCHEM PRICE INCREASES HARDBALL PURCHASING PRESSURES VEHICLE PRICE DECREASES LEGACY COSTS, LABOR PRESSURES GLOBAL COMPETITION OFFSHORE COMPETITION IMPORTED COMPETITORS RAW MATERIAL PRICE INCREASES FUEL COSTS (PROD. LINE FIT) RAW MATERIALS COMPOUNDER TIER 1 FABRICATOR ASSEMBLY PRICE COMMODITIZATION MATERIALS TECHNOLOGY LAG TIER 2, 3 SUPPLIERS PROCESS TECHNOLOGY LAG LEGACY COSTS MARKET SHARE LOSS OVER CAPACITY STOCKHOLDER PRESSURES SHIFT TO MORE ATTRACTIVE MARKETS ELIMINATION OF EXTRA STEPS PRESSURES PASSED DOWN THE SUPPLY CHAIN: ELIMINATE/REDUCE THE INEFFICIENCIES: -MULTIPLE STEPS -EXCESSIVE LOGISTICS -SCRAP GENERATION -INEFFICIENT PROCESS TECHNOLOGIES -SALES/MARKETING COSTS -EXCESS LABOR COSTS -OVER-GLOBALIZATION? SOURCE: ROBERT ELLER ASSOCIATES, INC., 2006 re/mydox/tpemcii/spetpo05-implosion.vsd lg/myfiles/visio/spetpo05-implosion.vsd PRICING PRESSURES SUPPLY CHAIN "MANAGEMENT" DEMAND SLOWDOWN REVISED SPECIFICATIONS GLOBALIZATION PRESSURES 12

13 ADVANCED TECHNOLOGY NONWOVEN TARGETS HEADLINER SUBSTRATE/FACE FABRIC?* PILLAR TRIM HOOD ACOUSTIC INSULATOR PACKAGE TRAY FILTER SYSTEMS SEAT BACK DASH INSULATOR* DOOR MEDALLION* SEAT SIDES* FENDER LINER *INDICATES FOAM/FIBER INTERFACE FLOOR/ACOUSTIC SYSTEMS* SOURCE: ROBERT ELLER ASSOCIATES, INC., 2006 TRUNK FLOOR/ LOAD FLOOR/ WHEEL ARCH re/mydox/papers/advtechnwtgts06.vsd lg/myfiles/visio/advtechnwtgts06.vsd 13

14 EUROPE/NAFTA NONWOVEN DIFFERENCES TARGET MODULE/ NONWOVEN POSITION KEY PARAMETER TRUNK/FLOOR MODULE CONSTRUCTION SHIFTS RECYCLING PRESSURES WEIGHT REDUCTION PRESSURES HEADLINER FACE FABRIC NW CARPET SURFACE ACOUSTIC PERFORMANCE. REQUIREMENTS USE OF LIGHTWEIGHT FIBER CONSTRUCTIONS -DEVELOPMENT TARGET IN BOTH REGIONS -EUROPEAN BEER CRATE LEGISLATION - TALL CARS INCREASING FASTER IN NAFTA -EUROPEAN SPARE TIRE COVER DESIGNS MORE ADVANCED -SIGNIF. IN EUROPE/VERY MODERATE IN NAFTA -FAVORS PO MONO-MATERIAL CONSTRUCTIONS -HIGHER IN EUROPE -INCREASE IN NAFTA DUE TO: - HIGH FUEL PRICES -SLOWLY CHANGING FLEET MIX -HIGHLY PENETRATED BY NWs IN EUROPE -HIGHER (65%) IN EUROPE(STARTING IN U.S.) -DIFFERENT FREQUENCIES, SIMILAR PERFORMANCE REQUIREMENTS -SIMILAR (SLIGHTLY MORE ADVANCED IN EUROPE) 14

15 AUTO INDUSTRY SHIFT IMPLICATIONS AUTO INDUSTRY FACTOR NONWOVEN EFFECT SUPPLY CHAIN IMPLOSION PROFIT PRESSURES WEIGHT SAVINGS VALUE GAIN POLYOLEFINS FOAM INCREASE INCREASE PP IN INTERIORS MONOMATLS CONSTRUCTIONS GLOBAL VEHICLE SHARE GAIN ACOUSTIC IMPROVEMENT REQ D B-VEHICLE SHARE GROWTH TECHNOLOGY CONVERGENCE REDUCE TIER 2, 3 SUPPLIERS ROLL GOODS SUPPLY SHIFT -GROWTH OF ACOUSTICS NWs -HEADLINER TARGET POLYOLEFIN NW INCREASE FAVORS PP NONWOVENS FAVORS PP NONWOVENS -TECHNOLOGY CONVERGENCE - GLOBAL SUPPLIERS MICRODENIER NW PENETRATION -REDUCE SQ M/VEHICLE -INCREASE NW USAGE U.S. NEARS EUROPE/JAPAN TECH. 15

16 ADVANCED TECHNOLOGY NW OPPORTUNITIES/CHALLENGES PARAMETER NONWOVEN PERFORMANCE CAPABILITIES VALUE CHAIN POSITION SHIFT WEIGHT/MAT LS COST SAVE IMPLICATION MIRODENIER SHARE GAIN ELASTIC NONWOVENS IMPROVED UV RESISTANCE SUPPLIERS MUST ADD VALUE TO ROLL GOODS -GROWTH OF PP NWs PROCESS COST REDUCTION PET BICO MARKET SHARE GAIN QUALITY IMPROVEMENT TECHNOLOGY CONVERGENCE -IN MOLD FORMING/BACKMOLDING -FOLLOWED BY PP? ELASTIC NWs?/IN MOLD QUALITY U.S. NEARS EUROPE/JAPAN TECH. 16

17 SUPPLY CHAIN STRATEGIES FOR NW SUPPLIERS FORWARD/BACKWARD INTEGRATION -LAMINATION -PRE-FORMED ROLL GOODS -HIGH VOLUME TAILORED ROLL GOODS ADAPT NEW NW MATERIALS/PROCESS TECHNOLOGIES -ELASTIC NWs -ALTERNATIVES TO FLAME LAMINATION -IMPROVED BACKMOLDING SANDWICH LAYER CONSOLIDATION -ALL-FIBER CONSTRUCTIONS REDUCE SECONDARY OPERATIONS -LASER SCORING -IN MOLD TRIM 17

18 INCUMBENTS AND CHALLENGERS IN NONWOVENS CONSTRUCTIONS MATS TEXTILES/SKINS CARPET SEMI-STRUCTURAL(c) INCUMBENT -SHODDY -PU FOAM CHALLENGER -MD NW -N-PUNCHED -SPUNBOND -MELT SPUN -LIGHTWEIGHT FIBER MAT(b) INCUMBENT -KNITS -WOVEN -SKINS -COATED FABRIC -LEATHER CHALLENGER -NWs -NON-SKIN TECH -LUXURY COATED FABRIC -2-SHOT MOLDING INCUMBENT -TUFTED -NONWOVEN CHALLENGER -NW INCUMBENT -FOAM LAM. -BLOW MOLD -INJECTION CHALLENGER -LFTPs(a) -PU/HONEYCOMB -PO FOAMS NOTES: (a) AZDEL SUPERLITE, SYMALITE (b) FROM RIETER, C+A, LEAR, PELZER, FAURECIA INCORPORATING MICRO-DENIER NONWOVENS (c) E.G., EXTERIOR WHEEL ARCH LINER, LOAD FLOORS/TRUNK MODULE, HEADLINER SOURCE: ROBERT ELLER ASSOCIATES, INC., 2006 b/mydox/papers/incumbchalnw06.vsd lg/myfiles/visio/incumbchalnw06.vsd 18

19 ADDING VALUE VIA IMPROVED FUNCTIONAL CHARACTERISTICS VALUE-ADDED STRATEGY IN-MOLD DECORATION WEIGHT SAVE SURFACE ESTHETICS -BETTER ACOUSTICS -IMPROVED DRAPE -REDUCED WRINKLING CRAFTSMANSHIP/QUALITY ELASTIC NONWOVENS LUXURY FABRICS NONWOVEN EXAMPLE/TARGET MODULE -PILLAR TRIM -FLOOR/ACOUSTICS, HEADLINER -MICRO-DENIER NONWOVENS -NEGATIVE FORMING MICRO-DENIER NONWOVENS -JCI CRAFTECH PROCESS -OTHER IN-MOLD PROCESSES -VIA NEW PO RESINS PENETRATING SEATING, DOOR TRIM, INSTRUMENT PANEL 19

20 IN-MOLD FORMING AND SANDWICH CONSOLIDATION NUMEROUS METHODS AVAILABLE PROCESS COST SAVE POTENTIAL PO FOAM/TEXTILE LAMINATES EVOLVING IN EUROPEAN FLEET BASED ON PET AND PO TEXTILES INCREASED POLYOLEFIN SUBSTRATE MOLDING RESINS ACCELERATES PO NWs ROLE IN ENERGY MANAGEMENT COMPONENTS (e.g., B-PILLAR) 20

21 EPP SEMI-STRUCTURE/TEXTILE COVERING CONCEPT SOURCE: TARACELL 21

22 NONWOVEN/PO FOAM LAMINATES NONWOVEN/PO FOAM LAMINATES SHOW POTENTIAL FOR PENETRATION INTO INTERIOR SOFT TRIM MODULES BASED ON: IMPROVED THERMOFORMABILITY VS. TEXTILE/PO FOAM LAMINATES IMPROVED RECYCLABILITY WITH DOMINANT PO SUBSTRATES MATERIAL AND PROCESS COST SAVINGS TEXTILE/PO FOAM LAMINATES PENETRATION OF PO NWs UV RESISTANCE, ABRASION RESISTANCE ELASTIC PROPERTIES AND MICRODENIER WEIGHTS WILL FACILITATE PO 22 NONWOVENS PENETRATION

23 FLOOR/TRUNK TARGETS DASH MAT/PASSENGER COMPARTMENT ELIMINATE/REDUCE HEAVY LAYER MICRODENIER NW PENETRATION HAS STARTED TRUNK MODULE GROWTH OF CONSOLIDATED TRUNK MODULE NEED FOR SEMI-STRUCTURAL PROPERTIES ROLE FOR HONEYCOMB CONSTRUCTION BOTH FOAM/FIBER COMPETITION NEED FOR FORMING PROCESS TECHNOLOGY SHIFTS ROLE IN THRU-THE-FLOOR CONSTRUCTION 23

24 EXAMPLE OF DASH MAT LAYER CONSTRUCTION HEAVY LAYER ACOUSTIC BATTING CARPET SOURCE: COLLINS & AIKMAN 24

25 HEADLINER CONSTRUCTION SHIFTS/ROLE OF NONWOVENS GR-PU FOAMS/PA KNITS FOAM CORE FIBER CORE PO FOAM/ PO NONWOVENS PO FOAM/ KNITS LIGHTWEIGHT COMPOSITES/ KNITS OR NONWOVENS PET BICO/ KNITS PP BICO?/ PP NONWOVENS? LIGHTWEIGHT PET BICO/ NONWOVENS NOTES: - OVERHEAD MODULE DESIGN CHANGES COULD SHIFT HEADLINER CONSTRUCTION REQUIREMENTS - ROLE OF HEADLINER IN THRU-THE-ROOF OVERHEAD MODULE SOURCE: ROBERT ELLER ASSOCIATES, INC., 2006 b/mydox/papers/hdlnrnw06.vsd lg/myfiles/visio/hdlnrnw06.vsd 25

26 PATHS TO MARKET FOR AUTOMOTIVE NONWOVENS RESIN PRODUCER RESINS (E.G., PO, PET) SPUNBOND NONWOVENS PRODUCER (E.G., FREUDENBERG) NONWOVEN NEEDLEPUNCH NONWOVEN PRODUCER NEEDLEPUNCHED FABRIC TO SEAT, HEADLINER, DOOR TRIM TUFTING RECYCLED COTTON FIBERS NEEDLE- PUNCH PU FOAM FORMULATION LT. WT. FIBERS(B) NEEDLEPUNCH MAT(SHODDY) FOAMING OR LAMINATION WITH FIBER MAT TRIM, DIE CUT, WATERJET(A), OR LASER TRIM LAMINATE OR BACK-INJECT (HINTER- SPRITZEN) TRIM LAMINATE OR BACK-INJECT (HINTER- SPRITZEN) (D) TRIM NOTES: OMITS HYDROENTANGLED (ABOUT 6% MKT. SHARE) (A) DOMINANT METHOD DASH MAT FLOOR ACOUSTIC MODULE TRUNK FLOOR MAT(C) TRUNK FLOOR MAT (B) E.G., AcT TM (C+A), ULTRALIGHT TM (RIETER), SonoTec AT (LEAR), DUAL IMPEDANCE FIBER (PELZER) (C) HIGH END VEHICLES ONLY (D) EPP FOAMS MAY BE USED FOR HINTERSPRITZEN PACKAGE TRAY DOOR TRIM PANEL nonwoven ptm 03.vsd 26 SOURCE: ROBERT ELLER ASSOCIATES, INC./JOHN R. STARR, INC. AUTOMOTIVE NONWOVENS MULTICLIENT STUDY

27 NONWOVEN PATH-TO-MARKET OPPORTUNITY FOR ADDING VALUE RESIN NONWOVEN PRODUCTION NONWOVEN PREFORM FOAM LAMINATION PU RESIN? SKIVED PU SHEET PO FOAM SHEET? NW/FOAM LAMINATE PU FOAM RESIN MODULE ASSEMBLY PREFORMED SUBSTRATE MODULE ASSEMBLY MODULE ASSEMBLY SUBSTRATE RESIN ASSEMBLED MODULE OEM NOTE: = VALUE ADD OPPORTUNITIES FOR NONWOVENS SOURCE: ROBERT ELLER ASSOCIATES, INC./JOHN R. STARR, INC. AUTOMOTIVE NONWOVENS MULTICLIENT STUDY nw op val ad 03.vsd 27

28 AUTO DEMAND/ OPPORTUNITIES ENABLERS 65MM UNITS / 3%/YR. GROWTH RADICAL OEM RESTRUCTURING AGGRESSIVE COST SAVE SEARCH FLEET COMPOSITION SHIFT REGIONAL VEHICLE PROD'N. SHIFT CHINA/ASIA VEHICLE SHARE GAIN SUPPLIER REDUCTION NEW PROCESS TECHNOLOGY PROPERTY ADVANTAGES SYSTEMS COST SAVINGS POTENTIAL MONO- MATERIAL CONSTRUCTION ADVANCED TECHNOLOGY NONWOVENS SOURCE: ROBERT ELLER ASSOCIATES, INC., 2006 re/mydox/papers/autodemand-oppys06.vsd lg/myfiles/visio/autodemand-oppys06.vsd 28

29 SUMMARY PROFITABILITY PRESSURES WILL INTENSIFY VEHICLE GROWTH WILL BE IN ASIA PACIFIC SUPPLY CHAIN SHIFTS OFFER OPPY S/CHALLENGES FOR NWs POLYOLEFIN FOAM/NW LAMINATES WILL GAIN SHARE ADVANCED TECHNOLOGY NWs OFFER VALUE ADD POTENTIAL AND SYSTEMS COST SAVINGS VIA: - MONOMATERIAL CONSTRUCTIONS - ELASTIC NONWOVENS - IMPROVED ACOUSTIC PROPERTIES (ELIMINATION OF HEAVY LAYER (PARTIAL IN FLOOR SYSTEMS) 29

30 SUMMARY (CONT D.) KEY TARGETS ARE - HEADLINERS (SUBSTRATE/FACE FABRIC, NW vs. KNIT COMPETITION) -FLOOR/ACOUSTIC SYSTEMS (MICRODENIER NWs) -DOOR MODULES (PO NW/PO FOAM LAMINATE PO NONWOVENS PENETRATION WILL BE FACILITATED BY: - UV RESISTANCE - ABRASION RESISTANCE - ELASTIC PROPERTIES - MICRODENIER WEIGHTS/ACOUSTIC PROPERTIES - BICOMPONENT FIBERS 30

31 THANK YOU 31

ROBERT ELLER ASSOCIATES, INC.

MARKET ECONOMIC TECHNICAL ANALYSIS Management DECISIONS ROBERT ELLER ASSOCIATES, INC. CONSULTANTS TO THE PLASTICS AND RUBBER INDUSTRIES ROLE OF NONWOVENS IN AUTOMOTIVE INTERIOR SURFACE AND CONSTRUCTION