DuPont Corporation Sale Of Performance Coatings Case Solution

DuPont Corporation expects sales growth to fall around 3-5% compared to 7% growth, which was the company’s target. A high growth rate in 2012 of 12% is attributed to the increase in raw material costs, which was translated from the increase in oil prices globally. Oil is an essential ingredient in raw materials used for automotive painting. The increase in sales is not an indication of a sustainable growth rate.

It is difficult for DPC to pass the increased cost to buyers as it enters into multiyear contracts with the automobile industry. Therefore, in the short term, DPC has to bear the expenses which affect profit margins.

Another factor is changing customer behavior with regard to refinishing. The refinishing business was one of DPC’s strengths, but it fell 10% from 2009 to 2011. This was due to the decreasing number of collisions in the US, and the high deductible clauses imposed by insurance companies, which meant car repairing was discouraged.

There was decreasing production of motor vehicles globally due to the economic recession of 2008. Moreover, the chemical industry was going through a change as it was demanded that it comply with emission standards. Treating hazardous waste was costly. All these factors contributed to DPC expecting reduced growth of 3-5%.

DPC is now a liability for DuPont. It does not fit into the strategic goals of the firm. Divesting the business segment will help DuPont to focus on the new strategy of investing in high growth businesses. Selling the business will generate the cash required for better funding.