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Automotive Materials Market

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Does ‘Pickup’ in Aluminum Signal a Shift in Automotive? While steelmakers and aluminum producers continue to jockey for position as the dominant material in the next generation of fuel-efficient vehicles, the overall market for cars and light trucks continues to expand. By Myra Pinkham, Contributing Editor Does Ford's plan to introduce its popular F-150 pickup with a largely aluminum body signal a major shift in the automotive materials tug-of-war? Aluminum makers say they are not surprised and that the change was inevitable, while steel suppliers maintain it is far premature to sound the death knell for automotive grade steels. Ford is tight-lipped about its plans, but reportedly will begin production in 2014 on its next generation of aluminum-intensive F-Series pickups for model year 2015. “We are confident the steel grades we supply today, together with those we are developing for the near future, will provide body structure lightweighting opportunities of up to 25 percent or more if used in a design that optimizes the geometry, grade and gauge of all of the body structure components,” says Blake Zuidema, director of automotive product applications for ArcelorMittal USA in Chicago. “These solutions offer significant weight reduction that can be achieved at a cost that is substantially below that of other materials, such as aluminum, magnesium and carbon fiber.” “In the next several years, car companies will be experimenting with their options. But we feel that since new steels are coming very close to achieving the weight savings of alternative materials, and because steel’s price is so much lower, there could eventually be conversion back to steel for some applications,” adds Ronald Krupitzer, vice president of automotive marketing for the Steel Market Development Institute in Washington, D.C. Executives from the aluminum industry offer a much different take. Aluminum is already the No. 2 material in vehicle construction, and its suppliers expect its market share gains to accelerate. “Aluminum has evolved from being perceived as a new automotive material to an accepted material to a material of choice when lightweighting is needed,” says Doug Richman, vice president of engineering and technology for Kaiser Aluminum Corp., Foothill Ranch, Calif. The density of steel is still three times that of aluminum, even after replacing mild steel with more advanced-high-strength steels. For that reason, development of new steels is approaching a point of diminishing returns, especially for applications where strength is not an issue, he contends. Steven Demetriou, chairman and CEO of aluminum producer Aleris International Inc., Beechwood, Ohio, predicts the light metal will eventually capture the largest share of the auto body. “With the upcoming fuel efficiency standards, the shift has already started. I believe it will be a rapid, transformational change. That will be the only way to meet the upcoming regulatory requirements.” The U.S. government is raising corporate average fleet efficiency requirements to 34.6 miles per gallon by 2016 and to 54.5 mpg by 2020, from the estimated 23 mpg average today. That translates to about 27.7 mpg of real driving by 2016 and 43.0 mpg by 2020, says Dick Schultz, managing director of the materials practice at Ducker Worldwide LLC, Troy, Mich. The figures are lower because official testing for the government requirements assumes 70 percent highway driving, which is more than the typical American drives. While the government is demanding the greater mileage performance, the public is also on board with the shift. With prices sticking near $4 per gallon of gasoline, the North American consumer is starting to place fuel efficiency much higher on the priority list. According to a recent Consumer Reports survey, about 37 percent of car buyers considered fuel efficiency the No. 1 factor in their automobile buying decision. More than 80 percent of respondents indicated they would be willing to pay more for greater fuel efficiency, compared to just 54 percent in a similar survey in 2008. Automotive leads the economy Although the recovery of the U.S. economy is far from complete, the auto industry has rebounded to more than 15 million units in both annual production and sales. “And there’s a lot of room to grow from here,” says James L. Wainscott, president, chairman and CEO of West Chester, Ohio-based AK Steel. “The consensus estimates are for continued growth in 2013 and beyond.” Several factors are driving demand for new vehicles, say the experts, including improved credit availability and low interest rates, the growing pool of drivers, their desire for greater fuel efficiency and safety, and interest in the latest electronic features such as GPS, Bluetooth and Internet connectivity. Recognizing consumers’ desire for the latest bells and whistles, automakers have introduced about 30 new models recently, says Scott Adams, executive director of sales, North American automotive, for Cleveland-based Eaton Corp. Pent-up demand from the economic downturn accounts for much of the bump in light vehicle sales. The average age of the American fleet is at a record high over 11 years. “People put off buying new cars when the recession hit, but after a while you cannot put it off any longer,” notes Bob Diciani, ArcelorMittal’s marketing manager. IHS Automotive reports that U.S. light vehicle sales reached nearly 15.3 million units in 2012, a 13 percent jump. Production will rise a further 3.2 percent this year to 15.9 units, estimates George Magliano, senior economist for IHS. He predicts the auto build rate will continue to grow despite lingering concerns about the economy, sequestration and political infighting in Washington. Production will increase another 2 percent to 16.2 million vehicles next year, followed by a 5 percent rise to 17.0 million vehicles in 2015. By 2020, as many as 17.7 million vehicles could be produced annually, topping the previous peak of 17.2 million vehicles in 2000, IHS forecasts. Another factor adding to that total is the relatively new phenomenon of U.S. auto exports. Shipments overseas have risen from essentially zero to more than 1 million vehicles in the past seven years, and that could double to 2 million by 2020, he says. With fewer Asian imports and the increased local sourcing trend, domestic automotive suppliers are benefiting. “It has resulted in increases in pricing and profitability throughout the automotive supply chain,” Magliano says. Different materials vie for the pie So the pie is getting bigger. The question digging at the supply chain is who will grab the largest piece. Some observers believe automakers will meet the rising mileage standards by picking and choosing among the materials available to them. One example of this a la carte approach is the new Cadillac ATS, one of the lightest cars in the compact luxury class. While it boasts an aluminum hood, magnesium engine mount brackets and carbon fiber door trim panels, it also takes advantage of high-strength steels and ultra-high-strength steels, including boron steel, in its body structure. “The end game will be a multi-material solution with steel still taking a big part in the body in white, but aluminum and other lightweight materials, such as magnesium and plastics, being used more than they are today,” says Ganesh Panneer, director for automotive, North America, at Atlanta-based Novelis Inc. Lloyd O’Carroll, senior vice president of research for Davenport & Co., Richmond, Va., expects aluminum to displace mild steel in new car designs, at least over the medium term. In Davenport’s fourth-quarter aluminum outlook, O’Carroll estimates this substitution could add four percentage points to the material’s growth from 2013 to 2025. The total steel content of the average light vehicle is expected to decline from about 1,700 pounds to less than 1,500, a combination of the inroads by other materials and the downsizing of cars. However, that trend is countered somewhat by the rapid movement toward HSLA, transformation induced plasticity and dual-phase steels. These steels are already thinner and lighter, and could move further in that direction through emerging technologies, says Ramzi Hermiz, president and CEO of auto supplier Shiloh Industries, Valley City, Ohio. One example is Shiloh’s proprietary engineered welded blank technology, which could help to both maximize strength and lighten weight more effectively than conventional curve linear tailor welded blanks, he says. Some steels, such as SBQ, have been mostly immune to any substitution, says Jack Finlayson, president of Gerdau Special Steel North America, Jackson, Mich. In fact, he says, as vehicles become more lightweight, they will require more SBQ bar components to maintain their strength and durability. “Steel industry consortium projects, like the Ultra-Light Steel Auto Body and the FutureSteel Vehicle programs, have taught us how steel property improvements can affect the weight and structural performance of each major component in the vehicle’s structure,” says Zuidema at ArcelorMittal. “We have used these insights to set targets for developing new steel grades to maximize weight reduction in every major structural component.” The aluminum industry counters the contention that steel—even advanced high-strength steels—can achieve the same weight, and therefore fuel, savings as its product. “With aluminum, you can get up to a 42 percent savings in the body in white and closure panels,” Kaiser’s Richman maintains. Novelis’ Panneer says cost should not be a disincentive for using aluminum. “If you just look it from a component replacement point of view, it could seem that using aluminum is more expensive. However, a lighter vehicle requires smaller brakes, smaller engines and other parts,” he notes, making aluminum a more cost-effective solution than it might appear. The use of aluminum in automotive applications has more than doubled over the last 20 years. Until fairly recently, the bulk of that has been for cast parts found under the hood and for the vehicle’s wheels. Ducker’s Schultz predicts that by 2025 the average North American light vehicle will contain about 550 pounds of aluminum, accounting for 16 percent of the total material content, up from the current 343 pounds. That gain will be largely in sheet products for body panels, closures and certain structural components. Such a trend will be advantageous to service centers, which tend to stock and process more aluminum sheet than castings. While steel’s share of the average vehicle will likely fall to around 46 percent from the current 57 percent by 2025, the amount of advanced-high-strength steel will nearly double to 375 pounds or 11 percent of the material content, Schultz estimates. All eyes on the F-150 The magnitude and speed of the shift depends on a number of factors, including how well the aluminum-body F-150 is accepted by consumers. As auto tends to be a copycat industry, a successful rollout of Ford’s pickup could be followed by the Chevrolet Silverado, Dodge Ram and other models quickly following suit, O’Carroll says. This is particularly true in the pickup segment where downsizing is not much of an option. But the F-150’s success is not a given, says Magliano at IHS. “Because of the rigidness of the pickup structure, I’m not sure if aluminum is totally suited to this application. The jury is out on how well the aluminum will stand up, especially for the bed of the truck.” In addition, the new, complex mix of materials brings new challenges to the manufacturing process. “As more dissimilar materials come into play, there is a need to improve joining processes between aluminum, steel and other materials,” says Dave Andrea, vice president of industry analysis and economics at the Original Equipment Suppliers Association, Troy, Mich. Growth toward annual production of 17 million-plus vehicles obviously is welcome by the supply chain, though its members remain cautious. The supplier base was hit hard during the economic downturn and is being conservative in how quickly it ramps up capacity. The same is true of metal producers, O’Carroll says. In the 1970s and 1980s, aluminum producers built up capacity based on an expected changeover to aluminum that didn’t materialize. So, while some companies have announced expansions, including Alcoa in Davenport, Iowa, and Novelis in Oswego, N.Y., most mills are waiting for actual orders before they make any commitments. The same measured increases are taking place in the high-strength steel market. “Eventually, however, more capacity will needed,” O’Carroll says. While the composition of future cars and trucks may be in dispute, there is one point on which both sides agree: Auto has been and will continue to be a bright spot in the U.S. economy.