DuPont Pushes for EuropeHerberts deal could be a sign of things to come

It wasn't just another megamerger when DuPont announced recently its intention to acquire Herberts GmbH, the coatings company of Hoechst AG, for $1.89 billion.

The acquisition, still awaiting government approvals, is compelling not only because it creates the largest automotive coatings company (original equipment and aftermarket) in the world, nor for the novelty of a U.S. company buying a German competitor.

No, this deal was perhaps the first sign of strategic positioning by suppliers who are eager to do business with the new DaimlerChrysler AG, now the fifth largest automaker in the world, as well as to strengthen ties in general with European automakers.

In the case of DuPont and Herberts, the strategy seems obvious: DuPont does not have a large share of Chrysler's coatings business in North America, while Herberts is a major supplier to Mercedes-Benz in Europe. A foot in the door with Daimler-Benz, which surely will guide purchasing decisions at Daimler Chrysler, should create opportunities with Chrysler in North America.

DuPont Automotive spokesman Terrence Cressy says the Herberts acquisition makes sense for a lot of reasons and was not designed specifically to win Chrysler business. "But we had it on our radar screen." The combined company will have sales of about $3.7 billion and 30% of the world's automotive coatings market.

Mr. Cressy says DuPont's prospects with Chrysler had been looking up even before the deal was announced. In the new model year, DuPont will start supplying finishes for Dodge Ram trucks. Still, DuPont counts Ford Motor Co. and General Motors Corp. as its largest coatings customers, while Chrysler relies on PPG Industries Inc. and BASF Corp. for most of its coatings.

The Herberts acquisition is directly in line with DuPont's overall strategy to increase sales in Europe. If the deal is approved, DuPont will gain more than a mere presence in Europe. Herberts is the leading supplier of automotive coatings in the region.

Less certain, however, is the future of Herberts Automotive Systems America's brand new headquarters and technical center in Pontiac, MI. Company officials hadn't even cut the ribbon before DuPont announced its intention to acquire Herberts.

Research and development labs at the site were designed to replicate scaled-down versions of automotive paint shops to save customers time and money as they plan for the future. The facility also focuses on standardized coatings technology for an increasingly global industry.

Herberts' plan for the Pontiac site, at the time of DuPont's announcement, was to expand the labs and eventually build a plant to produce water-borne and solvent-based coatings. The Michigan Department of Environmental Quality has already approved an annual manufacturing capacity of 2.6 million gallons (9.8 million L).

When complete, the entire $30 million complex is expected to employ 225 people. DuPont officials won't discuss their plans for the building until after the deal is final, which is expected in the first half of 1999.

Whether DuPont needs the facility is unclear. The company already has extensive labs at its headquarters nearby in Troy, MI, and an applications lab was just built in 1989 to allow whole car bodies to run through a controlled paint system.

Dieter Engel, president and CEO of Herberts Automotive Systems America, led development of the Pontiac facility and says the state-of-the-art building could play a key role in the development of automotive coatings of the future.

"There are 50 million cars to be coated by car manufacturers around the world every year," Mr. Engel says. "There are good reasons to find out what this facility could be."

Mr. Engel's mission has been to step up Herberts' presence in North America. If DuPont keeps the Pontiac facility and Mr. Engel keeps his job, he will surely face a new set of challenges.