The Consumer Has Spoken: Good-bye Gas Guzzler, Hello Hybrid
For years, the makers of aluminum and steel have been fighting each other for a greater share of the North American automotive materials market. At CRU’s 5th North American Steel Conference in October in Chicago, Richard Schultz gave them a look into how that fight will likely shake out.
Schultz is the managing direct of Ducker Automotive Materials Practice, Troy, Mich., a leading market research firm. He explained to the gathered steel executives not just how much their material’s use will decline in the coming years, but why.
“Things have changed a great deal in the last 20 years, and I’m here to tell you they will change even more over the next 20 years,” Schultz said.
The entire auto supply chain is well aware of the upcoming federal CAFE regulations that will dramatically boost the miles per gallon requirements and CO2 emissions restrictions of all North American light vehicles. To meet them, carmakers will have to dramatically change the mix of materials they use in order to produce lighter, more fuel-efficient vehicles. Most surprising to veteran industry watchers, Schultz said, North America’s automakers are finally on board with such revolutionary changes.
“After 20 years of fighting improvements in fuel economy, all of a sudden last June they all met at the White House and patted everyone on the back and signed these regulations.” Why the change of attitude? The consumer has spoken, Schulz said.
Prospective car buyers view the recent history in the price of gasoline—which experienced eight spikes in the last nine years—as not a temporary blip, but a permanent condition. Most feel gasoline prices well north of $3.00 per gallon are here to stay.
For the first time, fuel economy has become top of mind for consumers when it comes to automotive preference. In a 2010 study, fuel economy was considered “Extremely Important” by 66 percent of potential car buyers, the highest percentage out of 17 factors that included price, comfort and durability.
Moreover, that factor is important regardless of the type of vehicle, not just in the traditionally fuel-efficient cars. Once consumers have settled on the type of vehicle they prefer, whether that’s a sedan, SUV or pickup truck, fuel mileage becomes a key differentiator, Schulz explained.
Recognizing that, the automakers quickly deduced that it made more sense to simply get in line with the ambitious new fuel mileage regulations, as the market would have done it for them anyway.
“Once the consumer has spoken, as they did on air conditioning, on seatbelts, on airbags, on electric windows and on SUVs, they seldom are going to turn back,” Schulz said. “That’s marketing. You figure out what the consumer wants, sometimes before the consumer knows he wants it.”
Automakers hope to achieve the new mileage targets while spending an additional $3,000 or less per vehicle on average. That will be accomplished through a combination of a 2 percent footprint reduction, a 2 percent weight reduction and a shift to 40 percent alternative power train vehicles by consumers. Most of that shift is expected to be in gas-electric hybrids, rather than all-electric vehicles. New developments, such as increased use of fuel-injection and designs that reduce drag, also will contribute to the improved fuel mileage numbers. “A nice combination of technologies will yield the 50 or more mpg at a cost of $3,000,” Schultz said.
The question for metal suppliers, as carmakers strive to lighten vehicles by an average of 400 pounds, is how that will change the mix of steel, aluminum and other materials used to make cars and trucks.
“The exterior is where most of the [mild] steel is used today. These components represent 33 percent of the vehicle now, and that will be where weight has to come out. Other parts have already been down-weighted,” Schultz said.
Substituting aluminum for steel, practical in stiffness-critical parts such as the hood or a cross bar, can save 50 percent of the weight of steel at an average cost of $2 per pound saved. Advanced high-strength steels, which are most effective in strength-critical components, can save a pound of steel at the cost of 50 cents per pound of weight saved.
Studying small, medium-sized and larger vehicles, Ducker estimates that aluminum usage will increase anywhere from 90 to 600 pounds per vehicle, with an average increase of 225 pounds. The cost increase will range from $100 to $1,200.
With advanced high-strength steels, Ducker expects increased usage ranging from 68 to 400 pounds, averaging 250 pounds of new steels per vehicle, which translates to a weight savings of 80 pounds.
Magnesium, an alternate material that could provide even greater savings, is not expected to gain much share in automobile production due to supply constraints. The bulk of magnesium production is in China, and heavy domestic duties are in place against exports of the material.
Most of the weight savings must come from the predominant material in use today, mild and HSLA steels, Schultz said. The use of these traditional materials will decline by 10 percent by 2015, and could drop as much as 30 percent on a per-vehicle basis by 2025.
Ultimately, the auto industry will reduce its annual consumption of carbon steel sheet by three million tons for the same number of vehicles, with no reduction in size, through the use of AHSS and aluminum sheet, he said.
Closing his remarks, the auto analyst tried to offer some encouraging words to the assembled steel industry executives. “Steel is going to remain the predominant material in vehicles. It’s 58 percent today and will drop to 45-48 percent, but it will remain over 40 percent long after I’m gone. And we doubt aluminum will ever get over 20 percent of the vehicle,” Schultz said.