Scott Woods company visits: Axalta
World in Motion – Global equities blog

Scott Woods company visits: Axalta

I flew into Washington DC on a Sunday and had just enough time for some sightseeing in the capital, although it was freezing and a bit of a whistle-stop tour. I then had to drive two-and-a-half hours into rural Winchester, Virginia, which felt empty as most places were closed in preparation for a snow storm. With so few people about, the town reminded me of Punxsutawney in the movie Groundhog Day.

I visited paint manufacturer Axalta, which we have owned since 2016. Paint is actually quite a consolidated market, with only four or five different players of scale – the theory is that it should be quite oligopolistic in nature.

Axalta participates in the refinishing business, which is when you crash your car and visit the “body shop” to have it resprayed. Axalta has done a good job of getting equipment into body shops that scan the colour of the car and tells you what paint it needs to mix together to match the existing finish. So even if you had a 1999 Toyota Camry and the paint was faded, it would match it so that the final paint job looks the same. Axalta also participates in lots of niches in industrial paint, where one player will often dominate.

For me, this visit was a chance to ask questions about the underlying business with a particular focus on pricing, because in parts of the business it struggles to raise prices in the auto sector and it had recently seen a competitor enter the market with an irrational pricing structure. But I also wanted to see why paint is an oligopolistic market; in other words, what is so hard about manufacturing paint. I’m a chemist by background, so I find this personally interesting.

We went to an absolutely gigantic paint factory about 20 minutes outside Winchester, where Axalta was manufacturing one type of paint. It was interesting to see the scale of the plant – it looked like a refinery. I walked around, completely engulfed in the smell of acetone/solvent, which I was assured was fine for my health. It has these massive vats, four storeys tall, in which the paint is heated up in an incredibly complex process.

My main takeaways from the visit were the sheer scale of the place, discovering why paint is difficult to make and why this paint in particular is so special. The visit also helped me ascertain more details on the industry structure and the hurdles any new entrant would have to overcome.

1 February 2020
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February 2020
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