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April 2010: Automotive Market Forecast
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Back to the Drawing Board
for the Auto Supply Chain

By Myra Pinkham, Contributing Editor

Prospects are finally looking up for the North American automotive market, but carmakers still have a long way to go to get back to production levels of just a few years ago.
 
It is the beginning of better things to come, says Haig Stoddard, manager of North American automotive production forecasting for IHS Global Insight. “It will still be a tough year, but anyone who can make it through this year should be okay for the future.”

2009 was one of the worst years in history for the North American automotive industry. NAFTA light vehicle production plummeted to 8.5 million vehicles last year from nearly 12 million vehicles in 2008 and over 15 million vehicles in 2007, says Ronald Krupitzer, vice president of automotive applications for the American Iron & Steel Institute in Washington, D.C.

Despite this, the auto supply chain actually weathered the storm better than many had anticipated, says Bernard Swiecki, director of market analysis at the Center for Automotive Research in Ann Arbor, Mich. While the supplier base is now much smaller, leaner and poorer, its resilience and ability to survive without experiencing “apocalyptic” bankruptcies and closures has actually surprised a lot of OEM purchasing managers.

Which isn’t to say they weren’t hit hard. Dave Andrea, senior vice president of industry analysis and economics for the Original Equipment Suppliers Association, Troy, Mich., observes that about 60 major automotive parts suppliers—including at least 20 of the top 100 companies—declared bankruptcy in the past year, not including a number of smaller companies that chose to liquidate without trying to restructure. “We have never had that number of the largest Tier 1 suppliers go bankrupt in one year,” he says, adding a positive note: “Without a doubt, the way that General Motors and Chrysler’s bankruptcies were handled stopped an implosion of the supply base.”

Future Steel Vehicle Program
Works to Win ‘Green’ Race


Not only in the United States but internationally, automakers are being required to decrease the greenhouse gas emissions of their vehicles while also increasing their fuel efficiency. With more automakers turning to advanced powertrain technologies such as hybrids, electric and fuel-cell powered vehicles to meet these requirements, the steel industry is looking for new ways to maintain its material advantage.

This shift creates a challenge for the steel industry, as automakers look for materials to help them lighten vehicles to compensate for the heavy batteries and fuel cells, says Ronald Krupitzer, vice president of automotive applications for the American Iron & Steel Institute.

“There has been a radical shift in powertrains,” says Edward Opbroek, director of WorldAutoSteel, whose 16 global member companies have embarked on a Future Steel Vehicle research program to develop a safe, lightweight steel body for future cars and trucks that reduces emissions over the entire life cycle of the vehicle.

WorldAutoSteel hopes to build upon the momentum of the Ultralight Steel Auto Body Advanced Vehicle Concept program, which achieved a 25 percent mass savings vs. conventional auto body construction using advanced high-strength steels. The new goal is to position steel for the structures needed with next-generation powertrains, while achieving an additional 10 percent mass saving, Opbroek says.

Emission savings will be based on a total lifecycle assessment of the vehicle, which involves more than just looking at tailpipe emissions. Rather, it will take into account the total carbon footprint of the complete fuel cycle, the complete vehicle manufacturing cycle and end-of-life recycling, Opbroek says.

“We are optimistic that steel is the right choice for the future,” Opbroek says. “It has repeatedly reinvented itself over the years, going from mild steel to the current new grades, including advanced high-strength steels. When used with the optimized design technologies that are available, almost every automotive program could benefit from the new steels.”

Jody Shaw, manager of technical marketing for U.S. Steel Corp., Pittsburgh, says that the AHSS grades being considered for the Future Steel Vehicle program are more advanced than those used in ULSAB-AVC. About 90 percent of the body structure in the ULSAB-AVC program was composed of AHSS, with strengths as high as 800 to 1,000 megapascals (MPa). The FSV program will use steels up to 1,500 MPa. A decade ago the highest strength steels measured only 270 MPa.

The first phase of the FSV program, which evaluated new powertrain technologies and automotive components expected to be available through 2020, was completed in October. An interim report on the second phase of the program, which involves the design of the vehicle, is to be made public May 5 at AISI’s Great Designs in Steel conference in Livonia, Mich.

By that time, WorldAutoSteel will have studied which manufacturing technologies—such as roll forming, hot stamping, conventional stamping, tailor-welded blanks, rolled blanks and monolithic construction—would make the most sense for the body structure. The project is to be completed by the end of 2010, at which time the steel vehicle developed will be compared with the multi-material European Superlight Car in terms of weight, cost and lifecycle carbon footprint. After that, WorldAutoSteel will actively work to transfer the technology from the program so automakers can begin utilizing it on 2011 model vehicles and beyond.

“We are optimistic that our targets will be met,” says Opbroek. “We have a lot of evidence of that already. AHSS is a lightweight automotive material. The question is how to have a minimal impact on the environment.”
GM and Chrysler’s quick emergence from their Chapter 11 reorganizations, as well as the government’s Cash for Clunkers incentive program, have been credited for much of the auto industry’s turnaround. “I’m absolutely convinced that a recovery is on the way,” says Doug Richman, vice president of engineering and technology for Kaiser Aluminum Corp., Foothill Ranch, Calif. It will be a slow recovery, he adds, one that will take the automotive industry and its supply chain at least three to four years.

“I think Cash for Clunkers started the whole thing,” says Jim Mortensen, general manager of automotive sales for Severstal North America, Dearborn, Mich. “The large surge of sales during Cash for Clunkers started an inventory correction, and we have seen an increase on the sales front ever since,” he says.

Except for a slight decline in September, the month after the incentive program ended, vehicle sales have grown steadily since the fourth quarter. In fact, in February, all but one of the major North American automakers—both the traditional Big Three and the foreign-owned New Domestics—reported sales increases despite snowy weather conditions that likely kept additional consumers away from dealer showrooms. The lone exception, not surprisingly, was Toyota, which suffered due to its highly publicized product safety issue.

Fears that the Cash for Clunkers program simply pulled forward sales that would have occurred this year anyway appear unfounded, according to several studies, says Charles Territo, a spokesman for the Alliance of Automobile Manufacturers in Washington, D.C. Sales resulting from the program seem to have signaled an end to the downturn, he adds. While some of today’s increased demand is coming from the replenishment of dealer inventories, it appears the economy is improving rapidly enough to sustain increases in auto sales and production.

“Compared with a year ago, it is night and day,” says Robert Keeler, vice president of the automotive steel business at the Timken Co., Canton, Ohio. “Automotive production in the first quarter is about double what it was in the first quarter of 2009.”

Though March production achieved an annualized rate of about 11 million vehicles, Mark Cornelius, president of Morgan Co., West Olive, Mich., expects just under 10 million vehicles to come off the assembly line in 2010, up 15.0 percent from 2009. Cornelius predicts auto production will continue to gain ground over the next several years, including a 12.7 percent rise to 11.1 million vehicles next year, but will not approach 15 million light vehicles again until 2016.

Slightly more optimistic, the Center for Automotive Research pegs this year’s production at 12.4 million vehicles. “A few years ago that would have been awful. But considering what happened in 2009, this is decent prosperity. Even if you go with the lower forecasts, new orders will be coming to suppliers from the automakers,” Swiecki says.

The demand surge resulting from Cash for Clunkers created some chaos in the supply base, which was ill prepared for such a spike as automakers ramped up production, Keeler says. Many parts suppliers, especially small companies, remain concerned they won’t have the working capital needed to ramp themselves up for new vehicle programs as automakers retool for the market recovery.

The uptick in auto production has prompted several metals companies to restart or add capacity. According to Anthony Rizzuto, managing director of equity research for Dahlman Rose & Co. LLC, Severstal North America restarted its Warren, Ohio, blast furnace in early March and was planning to ramp it up to 80 percent of its capacity by the end of the month. At the same time, U.S. Steel Corp. is planning to restart its largest blast furnace in Gary, Ind. Later this year, the long-awaited ThyssenKrupp Steel USA mill in Calvert, Ala., is expected to begin a slow ramp-up, starting with its finishing line.

Severstal North America also has announced plans to resume modernization programs at its mills in Dearborn, Mich., and Columbus, Miss., which will result in new capacity coming on-stream in the third or fourth quarter of 2011. The upgrade will include a coupled pickle line and tandem cold-rolling mill along with a hot-dip coating line for the production of automotive exposed hot-dip galvanized and galvanneal coatings at Severstal Dearborn. That upgrade will increase the mill’s total output of cold-rolled sheet from 1.65 million tons to 2.1 million tons a year.

Severstal is also upping the crude steel capacity at its Columbus mill to 3.4 million tons and increasing the capacity of that plant’s downstream operations by up to 120 percent. The upgrade includes a second electric arc furnace complex as well as a fourth pickle tank, additional hydrogen batch annealing bases and furnaces, a push/pull pickle line and a second galvanizing line.

Aluminum producers have not been as quick to restart shuttered capacity. Most are waiting to be sure the current uptick in demand will be sustained. “Everyone is waiting to see how durable the recovery is. We can meet our customers’ needs without taking capacity out of mothballs [for the next year or two],” says Kaiser’s Richman, although the company might bring on a third shift to keep lead times from extending.

About 55 percent of NAFTA’s 2010 light vehicle production is expected to come from light trucks, which would be a plus for metal suppliers as light trucks tend to contain more steel and aluminum than passenger cars. About 80 percent of those, including the popular crossover utility vehicles, will be made with car-style unibody construction, however, rather than conventional truck-type body frames that are more steel intensive, Swiecki notes.
 
At the height of gasoline prices, the light truck share of the market declined from over 60 percent to below 45 percent. Now that gasoline prices have moder
 
ated, many consumers are reverting back to their preference for larger vehicles, says Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa. But Swiecki points out that it is actually the CUVs that have taken the largest share of the market. “We are not nearly as truck intensive as we used to be,” he says.

While consumers like the comfort and utility of SUVs and CUVs, they also want fuel efficiency, realizing that gas prices could easily return to their $4 a gallon pre-recession levels. New government fuel economy standards, to take effect in 2016, also promise to promote the use of smaller cars and trucks. In fact, Blake Zuidema, director of automotive product applications for ArcelorMittal, says his company’s latest forecasts predict that the share of small- and mid-size vehicles manufactured in North American will reach 71 percent by 2014.

Such a move to smaller, lighter vehicles, on the surface, is not good news for steelmakers. Experts expect the materials battle—especially between steel and aluminum—to gain intensity as both industries strive to grow auto applications in a market that has shrunk.
 
Will Steel or Aluminum be
in the Driver’s Seat?


With more stringent automotive fuel efficiency and safety requirements on the horizon, the competition between steel, aluminum and other materials promises to intensify. Not only are these new standards causing automakers to rethink the vehicles they put on the road, metals suppliers are scrambling to make sure they get to go along for the ride.

While such lightweight materials as aluminum and magnesium are expected to make further inroads in vehicle designs, so will advanced high-strength steels. “It will be a real battle part by part,” says Jay Baron, president of the Center for Automotive Research. “Given the pressure of the new Corporate Average Fuel Economy standards that are scheduled to take effect in 2016, we would assume we will see more aluminum per vehicle. However, demand for more safety bodes well for steel.”

Plastics and other composite materials will find new applications, as well. “We will continue to see a wide variety of materials in cars,” Baron adds.

Automakers have been moving toward more fuel-efficient vehicles for years, long before the new CAFE standards were announced, notes Charles Territo, a spokesman for the Alliance of Automobile Manufacturers. Though it will be difficult, automakers are committed to meeting the more stringent standards. “But there is no silver bullet,” he says. “Material substitution is one way, as well as more fuel-efficient powertrains, including hybrids, electric vehicles and clean diesel, and the use of new manufacturing technologies and designs. At the end of the day, what we think is important is providing consumers with what they want at an affordable price. I think the market will decide.”

Dick Schultz, senior consultant for automotive materials at Ducker Worldwide LLC, Troy, Mich., says that to meet the new CAFE rules, vehicles need to be lighter. He expects the curb weight of the average light vehicle to drop from 3,744 pounds in 2009 to 3,500 pounds in 2020, even without a shift in vehicle mix.

It will take a combination of factors to accomplish this, he says. About 75 percent of the savings will be nonmaterial in nature, such as moves to electric vehicles. There will also be further aluminum substitution for iron and steel and greater use of high-strength and advanced high-strength steels in place of some mild steel. There could also be more use of magnesium. “The big unknown is the consumer,” he adds, “and if there will be any shift in product mix.”

Blake Zuidema, director of automotive product applications for ArcelorMittal, says there appears to be a continuing shift in North America away from large trucks and sport utility vehicles toward smaller vehicles. “As drivers move out of the safe havens provided by their large cars and SUVs, they are demanding smaller cars with equivalent safety performance. This increases the demand for more sophisticated advanced high-strength steels, which are used increasingly to reduce weight while simultaneously improving safety performance.”

With the use of lightweight materials such as aluminum, however, vehicles could be fuel efficient while maintaining their size, which would appeal to consumers, says Mike Belwood, a spokesman for Alcoa Inc., Pittsburgh, and a member of the Aluminum Association’s aluminum transportation group.

Aluminum currently accounts for about 9 percent of the weight of the average light vehicle or about 325 pounds. “It is forecast that will rise by about 50 pounds per vehicle to 10.5 percent of the total vehicle weight by 2020, continuing 40 years of continuous improvement,” says Doug Richman, vice president of engineering and technology for Kaiser Aluminum Corp., Foothill Ranch, Calif.

Ronald Krupitzer, vice president of automotive applications for the American Iron & Steel Institute, admits that steel has been challenged by aluminum for use in numerous auto parts. “With the more stringent CAFE standards, aluminum has been seen as a viable option for certain applications even though it is more expensive. We think steel can accomplish similar weight reductions at a lower cost,” Krupitzer says.

“By applying certain manufacturing technologies where you use less steel in certain areas—which is possible with high-strength and advanced high-strength steels—you can further increase weight reduction and cost performance. The cost could be twice as much with aluminum parts,” he adds.

Ducker Worldwide estimates that the total amount of steel per vehicle, excluding stainless, will remain fairly constant over the next decade at about 54 percent. Mild steel’s share will decline, while conventional high-strength steel will remain flat. But use of advanced high-strength steels will increase about 15 percent per year to an average of 450 pounds per vehicle, up from 151 pounds today.

Much of aluminum’s growth will come from replacing iron rather than steel, although much of that substitution has already occurred. Today, about 80 percent of automotive castings are already aluminum, Richman says. “The next wave, which has just begun, will be the use of extruded and flat-rolled aluminum for engine cradles, subframes, instrument panel beams, bumpers and bumper reinforcements, and some closure panels such as hoods, trunk decks and door panels.”

There are also opportunities in body structures, says Charles Belbin, spokesman for Novelis Inc., Atlanta. “Aluminum isn’t used much in vehicle structures in North America, but it is in Europe for such vehicles as the Audi A8 and the Jaguar XJ. Given the success with European vehicles, we could have similar success in North America. ”

Alcoa’s Belwood admits that the initial cost of aluminum is more than steel, “But if you look over the entire duty cycle, it is very competitive.”

No matter what material is used to lighten vehicles, it will cost more, notes CAR’s Baron.

Zuidema at ArcelorMittal maintains that in addition to the cost advantage, steel has other plusses when compared with aluminum and other materials. It requires much less energy to manufacture a steel vehicle, and at the end of the vehicle’s life, steel is easier to recycle into new vehicles. “With today’s technologies, an aluminum car must be driven more than 140,000 miles to generate a carbon footprint smaller than a steel car,” he says.

Each material has its own set of advantages and disadvantages, Baron says. “What I would like to see is a venue where the various material sectors could work together to find the best material uses to manufacture an optimized vehicle, as opposed to viewing themselves as competitors.”
  
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