Solvay SA and Cie. Plastic Omnium SA plan to merge their global fuel-system operations, creating the world's undisputed largest maker of plastic fuel tanks. Solvay Automotive Inc., a unit of chemical giant Solvay SA, now spars with several others for the top position in fuel tanks. Plastic Omnium is a leading player in Europe and has a growing presence in North America, where it nearly has tripled sales in the past year.
The partners each will own 50 percent of the yet-unnamed company. The combined operations will have global sales this year of 800 million euros ($820 million) and will employ 3,000, company officials said.
"It really comes down to economies of scale and global business," said Keith Banks, president and chief executive officer of Plastic Omnium's North American operations, based in Rochester Hills, Mich.
The merger, scheduled to be completed by June, strengthens the financial wherewithal of both companies and gives them global reach, he said in a Jan. 13 telephone interview.
The company will have about 30 production sites in 15 countries, including sites in Europe, North America and Latin America. No immediate job cuts are expected, Banks said.
The deal is seen by analysts as needed in the face of global consolidation, tighter competition and new regulatory challenges facing fuel-tank blow molders in the United States and Europe.
"Now it is a race for size," said Michel Costes, chief executive of Mavel SA, a European automotive consulting firm based in Paris. "This is very important because of the new regulations on permeability of fuel tanks. Some stringent standards have already been introduced in the United States but they are still to come in Europe."
The increased number of plants will help the suppliers dramatically reduce expensive fuel-tank freight costs, said Joel Kopinsky, principal of automotive plastic consulting firm ITB Group Inc. of Novi, Mich.
"A big issue will be taking logistics out of the equation," he said. "They'll have the size and facilities to cut some corners there."
The merger also gives Plastic Omnium access to DaimlerChrysler AG, a major Solvay customer, and Solvay greater penetration at General Motors Corp., where Plastic Omnium does business, Banks said.
Brussels, Belgium-based Solvay and Plastic Omnium, based in Levallois, France, are part of a small fraternity of plastic fuel-tank makers. Competitors include TI Group Automotive Systems, Visteon Automotive Systems and Kautex Textron, a division of Textron Automotive Co. Inc.
The capital-intensive nature of the business has kept other suppliers from entering the field, said automotive consultant Phillip Sarnacke of Omnitech International Inc. of Midland, Mich. In North America, the six-layer tanks are blow molded through a coextrusion process, while monolayer tanks dominate in Europe.
"Because of the high capital investment, the opportunity to get the best return comes from combining resources," Sarnacke said. "It's an interesting move for a fairly profitable application."
The companies also will share technological innovations and command better pricing for materials and equipment, Banks said. Solvay, a major chemical company, also makes high density polyethylene resin used for fuel tanks.
Elenac SA, a joint venture between BASF AG and Shell Chemical Co., currently supplies HDPE to Plastic Omnium, said Michael Klamm, president of Elenac Inc., the Southgate, Mich.-based North American operations for Elenac. The company looks forward to working with the combined company, Klamm said.
"It wasn't a shock to us. Consolidations are occurring throughout the automotive industry," Klamm said.
Plastic Omnium will continue to produce exterior automotive systems separate from the merger, Banks said. The company makes such products as bumper fascias, plastic fenders and body moldings. Solvay's production of plastic air-intake manifolds also will not be affected by the announcement.
In North America, Solvay runs fuel-system production in Blenheim, Ontario, and Adrian, Mich., and has a filler-pipe and service center in South Bend, Ind.
Plastic Omnium makes the tanks in Anderson, S.C., and at a recently opened plant in Ramos Arizpe, Mexico.
Solvay and Plastic Omnium have operated a fuel-tank joint venture, called Plastauto Ltda., in Brazil since 1998. That venture, including two plants, will be part of the new company, Banks said.
Together, the companies recorded $390 million in North American blow molding sales in 1998, according to Plastics News figures. Solvay ranked 10th and Plastic Omnium 24th on the survey.
Plastics News London-based correspondent Richard Higgs contributed to this story.