Steelmaker fights back after Ford defects to aluminum

Thomas Biesheuvel and Firat Kayakiran
Bloomberg News

When Ford Motor Co. confirmed last year it would build its most popular pickup truck using aluminum, the automaker’s steel supplier was caught flat-footed.

Now ArcelorMittal, the top worldwide supplier of steel for autos, has built a two-pronged response to try to head off defections by other customers including General Motors Co., Fiat Chrysler Automobiles NV and Japan’s biggest carmakers.

First, the Luxembourg-based company developed lighter steel that’s as strong as earlier products. Second, it embedded almost three dozen engineers with car companies around the world so there are fewer surprises on vehicle redesigns, according to Brian Aranha, head of ArcelorMittal’s automotive business.

“We see the threat,” said Aranha, whose unit is ArcelorMittal’s most profitable, in an interview at the company’s London offices. Losing the deal with Ford “was on a large-enough scale that it made us pay a lot of attention and adjust our approach.”

Aluminum weighs less than steel, reducing fuel consumption of cars amid stricter emissions limits for automakers. At the same time it has historically been tougher to weld than steel, and typically costs about 30 percent more. It was breakthroughs in welding technology that helped overcome some of those concerns, leading to Ford’s decision to build its F-150 truck with an aluminum body.

‘We were surprised’

The move to aluminum was based on weight-reduction targets, said Matthew J. Zaluzec, head of materials and manufacturing research at Ford. “The engineering and research staff looked at many lightweight options including aluminum, advanced high-strength steel, as well as other materials options,” he said.

The threat for ArcelorMittal, the world’s biggest steelmaker, is other carmakers will follow suit. Its automotive customers include General Motors, Daimler AG, Toyota Motor Corp. and Honda Motor Co., according to data compiled by Bloomberg.

“Ford began this program a long time ago and maintained a very high level of confidentiality around it,” Aranha said. “We were surprised.”

The first step in meeting the new challenge was to take advantage of advanced engineering techniques to create lighter steel, including new hot-stamping processes and laser-welded blanks, according to ArcelorMittal. While the new products cost more, customers would use less, according to Aranha. That cuts the weight by about 20 percent for roughly the same cost. The new products are already available for pickup trucks.

Lighter vehicles

ArcelorMittal also embedded 35 engineers with carmakers and suppliers to help it gain insights into vehicles coming up for redesign.

“You’ve seen Mittal investing significantly more than their peers,” said Seth Rosenfeld, an analyst at Jefferies International Ltd. in London. “They have the size and financial flexibility to do that and they haven’t held back in that regard.”

Carmakers aren’t automatically looking to move away from steel, according to Aranha. They switch because they don’t think they have a way of making their vehicles lighter with steel, he said. It’s the job of his unit to make sure customers are aware that steel is now available that works just as well.

The auto industry uses about 150 million metric tons of steel annually compared with 4.5 million tons of aluminum.

Too late

“If you wait until it’s too late in the process, the designers will make an easy swap,” Aranha said. “If they involve us early, we’ll give them a solution that’s cost neutral.”

Many in the aluminum industry, meanwhile, are convinced the future is on their side.

Norsk Hydro ASA, an aluminum maker whose customers include Audi AG, Bayerische Motoren Werke AG and Daimler, is spending 130 million euros ($147 million) to expand capacity fourfold to an annual 200,000 tons from next year at its Grevenbroich plant in Germany to meet demand from carmakers.

“The trend is clearly a shift toward aluminum,” said Svein Richard Brandtzaeg, Norsk Hydro’s chief executive officer. “We are in close cooperation with many carmakers who are looking into increasing the use of aluminum in their cars.”