Aluminum Tests Its Mettle Against Steel in Drive for Lighter Cars

Tougher fuel-efficiency standards, made even more urgent by the recent run-up in gasoline prices, are intensifying the fight between steel and aluminum companies to build the next generation of lightweight cars.

Auto makers want to strip out anywhere between 250 pounds and 700 pounds from each car, or 15% of the weight, to achieve the 7% to 20% fuel-usage reduction mandated by the Transportation Department and the Environmental Protection Agency. Other countries, including members of the European Union, are also insisting on greater fuel efficiency, making the drive to reduce weight a global one.

"To get to the next step in fuel economy, you have to look at a new material: aluminum," said Klaus Kleinfeld, chief executive of Alcoa /quotes/comstock/13*!aa/quotes/nls/aa (AA 16.00, -0.04, -0.25%) Inc. The country's largest aluminum maker has hired more than 1,300 people over the past year, many of them for Alcoa's automotive business, and Mr. Kleinfeld said he wants to double the amount of aluminum he sells to car makers by 2013.

Aluminum is, on average, 10% to 40% lighter than steel, depending on the product, but is more expensive.

Mr. Kleinfeld said, "I believe steel has reached its limit," referring to its appeal for the next generation of lighter, more fuel-efficient cars.

Not surprisingly, Lakshmi Mittal, CEO of Arcelor Mittal /quotes/comstock/13*!mt/quotes/nls/mt (MT 34.30, -0.65, -1.86%) , the world's largest steelmaker, has a different view: "I don't see what Klaus is saying. This has been the prophecy of the aluminum industry for a long time."

The auto market is huge in terms of volume and profits for metal makers, consuming more than 100 million metric tons of metal in a year. Steel continues to dominate, at about 87 million tons of steel used in the production of automobiles world-wide annually, compared with about 12.5 million tons of aluminum, according to Ducker Worldwide, a consulting and research firm. The mandate for lighter cars is opening the door wider for aluminum.

The gap between aluminum prices and steel prices has narrowed. Aluminum used to cost twice as much as steel but is now 35% more expensive—although that can be 70% higher depending on the grade.

Alcoa also says car makers don't need as many big fasteners, bolts and other clasping devices with aluminum, which further saves on weight. Mr. Kleinfeld said aluminum can be more easily extruded into different shapes, eliminating the number of parts. Alcoa makes an aluminum rear liftgate that is 10 pounds lighter than a steel version.

A downside for aluminum is that many car factories, which have equipment and robots that work with steel, might have to be retooled or replaced so that the machines can work with aluminum, which has different welding properties and different thicknesses, say steelmakers.

Meanwhile, steelmakers have developed a lightweight product. Arcelor Mittal is building automotive-design centers in Japan and China, and its engineers have designed high-strength steel car parts that are 14% lighter than the previous generation, and at the same cost.

U.S. Steel /quotes/comstock/13*!x/quotes/nls/x (X 53.90, -0.13, -0.24%) Corp. is expanding its joint venture to build a new $400 million manufacturing line with Japan's Kobe Steel /quotes/comstock/64e!5406 (JP:5406 182.00, +15.00, +8.98%) Ltd. to produce more high-strength steel products. The steel maker has made high-strength steel products for years and says that it will continue to expand into the lighter, stronger steel markets for automobiles.

"It is house-to-house fighting and hand-to-hand combat," says John Surma, chief executive officer of U.S. Steel, of the fight between steelmakers for the automotive business. "This battle is so important to us."

Mr. Surma says that automobile-market sales account for about 25% of its North American business. "They are our most demanding customers in our most demanding market," he says.

Car makers love the competition and say they need changes in materials to meet new Corporate Average Fuel Economy, or CAFE standards, which will require their fleet of cars and trucks to get 35.5 miles a gallon by 2016—twice the average mileage of a Ford F-150 truck—which means removing hundreds of pounds from each car.

In a typical sedan, the body skeleton and power train each account for 25% of a car's weight. Both are generally made of steel. The chassis and suspension are about 21% of the vehicle's weight, and are made of mainly steel, too. The interiors are about 14% of the weight, with the remaining 15% from other car parts that are made from nonmetal glass, electrical components, doors, liquids and closures.

Auto makers are concentrating on the body skeleton for weight savings, which is what the metal makers are fighting over. Who will win?

"I believe in 2015 and 2020, we will be more aluminum-intensive," said Matthew Zaluzec, Ford Motor /quotes/comstock/13*!f/quotes/nls/f (F 14.67, +0.37, +2.59%) Co.'s manager for global materials and manufacturing research. "It may not be 100%, but it could be more than 50%." That would be a huge jump: right now, about 8% of a car's weight comes from aluminum and 57% from steel.

The higher cost for aluminum, though, can't be ignored, said Christian Buhlmann, spokesman for Volkswagen, Europe's largest automobile maker by sales, which has aluminum wheels and engine transmission parts. "Using aluminum, of course, always comes at a price," he said. "It is a question of how much budget will be spent." (Market watch)