DuPont-Honeywell Refrigerant at Risk After Mercedes Fires

An auto refrigerant developed by
Honeywell International Inc. (HON and DuPont Co. (DD and forecast to
generate billions of dollars in sales is being shunned by two of
Germany's largest carmakers after failing Daimler AG (DAI internal
safety tests.

Daimler says it won't use the chemical and is recalling
Mercedes-Benz cars that contain the product, defying a Jan. 1
European Union deadline to use the refrigerant in new models.
Volkswagen AG (VOW, Europe's largest automaker, is re-evaluating the
product in light of Daimler's tests and won't use it "until
further notice," Jeannine Ginivan, a spokeswoman for the
Wolfsburg-based company, said Dec. 20.

The Daimler tests surprised executives in the car industry
and at DuPont and Honeywell because the refrigerant had already
passed industry and U.S. Environmental Protection Agency
evaluations. Honeywell, which spent more than a decade
developing the product to meet environmental rules, says it's
waiting to see how the EU will handle Daimler's objections.

"The key element for the EU government is forcing the
implementation of their rule," said Terrence Hahn, general
manager of the U.S. company's fluorine products unit. "If you
are not doing that, you are going to severely dampen
innovation. "

'Total Surprise'

General Motors Co. (GM, the world's second-largest automaker by
volume, still plans to use the refrigerant, said Curt Vincent,
its engineering lead for heating, ventilation and air
conditioning. Daimler's tests came as a "total surprise" to
DuPont, partly because the "mild flammability" of the product
was disclosed from the outset, said Thierry Vanlancker,
president of the Wilmington, Delaware-based company's chemicals
and fluoroproducts unit. The tests don't reflect "real life
conditions" of a crash, he said.

No penalty is specified for not complying with the EU
directive, according to Walter Puetz, director of regulatory
affairs for Mercedes. The stance taken by Volkswagen and
Stuttgart-based Daimler means other automakers may do the same,
said David Doniger, a policy director at the Natural Resources
Defense Council in Washington.

"Then the oomph goes away, the market doesn't grow for
DuPont and Honeywell and it could all start to unravel,"
Doniger said by phone from Washington.

The move to the new refrigerant "will be fully enforced on
Jan. 1," the European Commission, the EU's executive body, said
in a Dec. 20 statement.

EU Directive

Refrigerants are non-corrosive chemicals that can be
readily compressed into liquids and expanded into gas, creating
cold temperatures. The DuPont-Honeywell product, HFO-1234yf, is
designed to cut the global-warming potential of mobile air-
conditioning systems. It reduces heat-trapping gases by 99. 7
percent compared with HFC-134a, the refrigerant Daimler and
Volkswagen plan to keep using.

The U.S. is encouraging use of greener refrigerants by
giving automakers who use 1234yf credit toward new fuel-economy
standards that take effect in 2017. The EU directive applies to
significantly redesigned models in 2013 and to all new cars sold
starting in 2017. Volkswagen has no models subject to the EU
requirement in 2013.

Honeywell is targeting $1.5 billion of revenue from the
chemical over five years, according to Hahn. DuPont, which
competes for sales with Honeywell, expects its revenue from the
refrigerant to climb 50 percent annually for five years, telling
investors in 2011 that the product was among its "key growth
opportunities."

Crash Tests

Daimler's tests were meant to simulate a high-speed crash
on the Autobahn or on a Texas highway in summer, Puetz said by
phone. B-Class sedans and competing cars were driven on a track
at speeds up to about 160 kilometers (99 miles per hour to heat
the engine compartment to an extreme temperature of about 665
degrees Celsius (1,229 degrees Fahrenheit. A mixture of
lubricant and Opteon, DuPont's brand name for the refrigerant,
was then released through a nozzle to simulate a broken line.

In each of more than 20 tests, an engine fire erupted,
Puetz said. "Heavy flames" were extinguished except in one
case where the car was allowed to burn to the ground, he said.

"We would significantly increase the risk of getting the
car on fire in an accident" by using 1234yf rather than
HFC-134a, which isn't flammable, Puetz said.

"Our goal is to always make the vehicle safer, or at least
as safe as it was before," he said. "If people burn in an
accident, you can't go back and say, 'We relied on a statistical
approach.'"

Chinese Output

DuPont is waiting for a resolution of the safety debate
before it "dramatically" increases production capacity at its
plant in Changshu, China, Vanlancker said.

"The whole story with Daimler is throwing a wrench into
our scale-up plans," he said by phone.

At GM, engineers "were astounded" by Daimler's tests
because the German company participated in prior safety
evaluations and didn't raise flammability concerns, GM's Vincent
said.

GM in 2010 became the first carmaker to commit to using the
new chemical, which is being used in new Cadillac and Chevrolet
Malibu models, he said. The Detroit-based company stands by the
product's safety. It's not difficult to design a test that
ignites many of the fluids found under the hood, yet engineers
find ways to mitigate the risk, Vincent said by phone.

Vincent chairs a panel at SAE International, an auto
engineering group, to evaluate Daimler's claims. Preliminary
results will be announced in February with a final,
independently reviewed report due by June, he said.

"We don't think the Daimler test is very representative at
all," he said.

To contact the reporter on this story:
Jack Kaskey in Houston at
jkaskey@bloomberg.net

To contact the editor responsible for this story:
Simon Casey at
scasey4@bloomberg.

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