Auto Manifesto

June 2, 2008

Steel Prices Rising Rapidly

Automotive News reported huge increases in steel prices, as well as those for aluminum and platinum (used in catalytic converters). The article says:

Steel prices are up roughly $500 per vehicle since January, says analyst John Hoffecker of AlixPartners LLC. According to the American Iron and Steel Institute, the average car contained 2,400 pounds of steel last year, while the average pickup or SUV contained nearly 3,000 pounds.

As previously mentioned, the best way to combat the risk of rising commodity prices for manufacturing vehicles is to use less material. Next best is probably to use a variety of materials to further hedge against runaway price increases of any one particular material, though if they all trend up then the creek still gets further and the paddle gets smaller.

If about 1/4 of the steel used to make cars now is eliminated by building lighter cars, the average cost increase since January would be about $375. Sure, a 25% reduction would be a lot but any manufacturer that could do that would have a significant competitive advantage, not only on the financial side but the cars would probably do a lot better in the marketplace as well due improved fuel economy and the very real possibility of better performance.



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