Dow Focusing on Specialty Products to Meet OEM Need

NEW YORK – Plans to divest itself of $5 billion of plastics businesses could trim Dow Chemical Co.'s sales to global auto makers in the short term, says Steve Henderson, president of the company’s automotive division.

“But new products in our pipeline will more than make up for (the loss of those businesses),” he insists.

Last summer, Dow announced its intention to group four auto-related plastics businesses into a freestanding division that eventually will be named Styron Corp.

The new entity will sell polycarbonate compounds and blends, emulsion polymers, synthetic rubber and stryenics. Dow is seeking to divest itself of these businesses in favor of selling higher-value products and services.

Henderson, appointed to his post just one month ago, says Dow now is focusing on supplying specialty products that solve problems for OEMs.

“Material science is going to play a greater role in the future of mobility,” he says. “Dow is prepared to offer that.”

Growth of Dow Automotive’s business will be paced by new adhesives, brake fluids and a new generation of advanced ceramic honeycomb diesel-particulate filters.

Dow adhesives can be used to fasten lightweight aluminum to steel pillars, as in BMW 7-Series’ roof.

“Foams for seating are also an area in which we'll continue to grow,” Henderson says.

Henderson declines to divulge Dow's total revenues from the auto industry, but admits sales have been down since the financial crisis began in 2007. “We saw the inevitable decline everyone else (experienced),” he says.

Sales in Europe account for 42% of Dow Automotive's revenues, while Asia and Latin America each contribute 15%, respectively, and North America, 28%.

Henderson forecasts a slow recovery for vehicle sales. “We're staying very conservative on North America, where we see 2009 (U.S.) volume at a little above 10 million units,” he says. He predicts U.S.-market expansion to about 11.5 million units in 2010.

The executive is more bullish on sales next year in Asia, where he sees China and India leading growth. However, Henderson believes European sales could be flat, contributing to a 2010 global forecast of 58-59 million deliveries. “It's hard to tell what the underlying structural demand is in the market,” he says.

Opportunities for Dow exist as the auto industry swings toward greener vehicles, Henderson says. “What we hear is 50% of fuel-economy improvement will come from the powertrain.”

Dow Kokam LLC, a joint venture between Dow and TK Advanced Battery LLC, in August received a $161 million grant from the U.S. Department of Energy to develop lithium-ion batteries to power the next generation of hybrid and electric vehicles. Dow Kokam’s Midland, MI, facility is expected to supply enough batteries for 60,000 electrified vehicles annually when it is completed in 2011.

Dow Kokam this month completed the acquisition of lithium-ion rechargeable battery maker Kokam America Inc., which includes patents held on next-generation superior lithium polymer battery technology.

Meanwhile, Dow is preparing to capitalize on the growing number of diesel vehicles with its new line of Aerify diesel-particulate filters that contain a chemically treated ceramic honeycomb nanostructure designed to meet future emissions standards.

Currently, about $1.5 billion worth of filters are sold annually worldwide, with Europe the largest market. But Henderson foresees an increase to $4 billion by 2018-2019 as China and India usher in new emissions regulations.

The executive predicts the industry will see a crossing point in terms of sales of internal-combustion-engine and electrified vehicles in the 2025 timeframe.

A shift to greener vehicles also will necessitate weight reduction, Henderson says. “That offers a lot of opportunity for Dow.”

Dow adhesives can be used to fasten lightweight aluminum, plastic and other material panels to steel pillars, as in the BMW 7-Series’ roof.

The company is the leading supplier of polyurethane foam with brands such as Betafoam, Specflex and Varactiv that enhance structural rigidity in vehicles and provide crash resistance while improving acoustics. Dow also is the No.1 supplier of glass bonding and structural bonding adhesives to OEMs.

Additionally, Dow offers Betabrace reinforcing heat-carrying composites for sheet metal and thermoset surfaces, which improves distortion resistance and helps materials resist fatigue.

Henderson estimates adhesives account for $100 million in annual sales to the auto industry. “Bonding is the new welding,” he says. “It will continue to grow because it allows you to bond dissimilar materials.”

However, the executive doesn't believe adhesives will enjoy the same percentage of use in light vehicles as it does in the aerospace industry. “But if you can bond an airplane together, you can certainly bond an automobile together,” he adds.

Much of Dow’s efforts to contribute to a greener auto industry come from within the company, Henderson says. “We put the pressure on ourselves. It's a way to distinguish ourselves from our competition.”