For Rivals U.S. Steel and Alcoa The Battle of Detroit Heats Up
As Car Makers Face Squeeze,
New Alloys Let Steelmaker
Regain Edge on Aluminum
Mr. McGuire's Favorite Toys
By PAUL GLADER
Staff Reporter of THE WALL STREET JOURNAL
October 19, 2004; Page A1
DETROIT -- J.P. McGuire is a secret weapon for U.S. Steel Corp. in one of its most important battles: the struggle with the aluminum industry for the hoods, doors and bumpers of American cars.
Mr. McGuire, a 30-year-old engineer who used to work for the aluminum side, sniffs out when Detroit auto makers are designing new cars. He then swoops in to try to hold onto or win back ground in a fight that pits stronger, cheaper steel against lighter, more costly aluminum.
For years, aluminum makers made steady inroads, pitching their product as the fuel-efficient metal of the future. But lately, steelmakers have been battling back with lighter new alloys and a continuing price advantage despite this year's big run-up in steel prices. Mr. McGuire points to a spreadsheet showing that since his arrival in 2001 U.S. Steel has reclaimed 56 parts on eight vehicles that had switched to aluminum. That represents 51,000 tons of steel annually, with a value of about $35 million a year.
Cars are the biggest market for steel and a growing one for aluminum. That means Pittsburgh rivals U.S. Steel and Alcoa Inc. are battling for nearly every wheel, lift gate and drive shaft coming out of Detroit. It's a battle that has broad consequences for the rival metals, the auto industry and the environment.
Facing increasingly intense competition around the world, car makers are pinching pennies as never before, forcing them to seek not just the most fuel-efficient materials but also the cheapest. The tension sets up intense competition between U.S. Steel and Alcoa, which are both counting on the car industry for their long-term profits.
Led by Alcoa, aluminum has gained auto-market share every year in the past decade, going from 140 pounds to nearly 300 pounds per car and generating about $5 billion in sales for North American aluminum makers.
But the auto makers' financial squeeze has helped the steel industry regain momentum. General Motors Corp. recently said it will be using aluminum hoods or lift gates on only six of its 87 vehicles next year, down from nine this year. "It's a cost issue," says Jody Hall, an engineering-group manager at GM. Ford Motor Co. said half of the eight aluminum hoods it had been using have returned to steel in the past three years.
The more than 100% rise in spot steel prices this year has done little to change that. Aluminum, whose more-elaborate processing gobbles up huge amounts of energy, still costs about twice as much as steel. About 1,840 pounds of steel still go into every car, generating about $15 billion in sales for the domestic steel industry. (Other automotive suppliers who use steel have been harder hit by the rising prices. See related article1.)
U.S. Steel and Alcoa have dueling research centers dedicated to auto makers in Detroit. U.S. Steel's five-year-old facility is the size of a football field. Not to be outdone, Alcoa's center, opened this month, is nearly twice as big.
The two rivals snap up each other's engineers and snoop on each other's plans. In presentations to auto makers, they provide tit-for-tat comparisons. Steel offers algebraic formulas showing aluminum is only a third as dense as steel and runs simulated crashes in a computer lab to show how steel's greater density helps bumpers withstand impact.
Alcoa points to similar equations showing the weight advantage of its material -- an aluminum hood weighs 20% to 50% less than one made of steel -- and says its engineers are trying to close the gap on material strength with new designs.
The two companies compete most fiercely in the roughly $5 billion market for so-called closure panels, such as doors, engine hoods, trunks and lift gates. Aluminum makers claim a 10% to 50% weight advantage for those parts; steel claims it is 20% to 50% cheaper.
Those comparisons are hugely important for auto makers. "It's all about reducing weight and lowering costs," says Ron Traficante, senior manager of body materials at DaimlerChrysler AG. The prime equation for each individual part is the ratio of cost savings to weight savings. Most of the time, steel wins the equation. But sometimes a more expensive but lighter aluminum panel is adopted to keep the overall vehicle weight below certain limits.
The stakes are high for both companies. U.S. Steel survived brutal market conditions and a wave of consolidation in its domestic industry, securing its position as the largest U.S. steel company. Rising steel prices -- fueled by surging global demand, especially in fast-growing China -- have returned the company to profitability in recent quarters, but it still faces high pension and other costs. It is streamlining operations to focus on key markets, including sales to Detroit, which represents about 20% to 30% of the company's $9.4 billion in sales last year.
Alcoa, whose headquarters sit on the opposite side of the Allegheny River from U.S. Steel's in downtown Pittsburgh, has solidified its place as the largest aluminum company in the world with a $28 billion market capitalization. Alcoa is focusing on premium markets where it can add engineering value to its basic material. The auto industry accounted for about $2.8 billion of its $21.5 billion in sales last year, a figure it hopes to double by 2010.
Although aluminum was on the body of some early cars such as Henry Ford's Model T, steel replaced aluminum on that model and has dominated most other car bodies since.
Shifting Emphasis
That started to change in the early 1980s, when energy concerns and stronger fuel-economy rules shifted car makers' emphasis from strength to weight. Once-complacent steelmakers blanched when GM rolled out the Pontiac Fiero in 1984, the first mass-produced vehicle with a plastic composite body. Many engineers at Detroit's Big Three auto makers said their future was in plastics.
"We looked at plastic as the antichrist if you will," says Pete Peterson, who retired this month as head of automotive marketing at U.S. Steel and is regarded by many as the "godfather" of the steel industry's efforts to beat back competition from other materials.
Within months of the Fiero's debut, Mr. Peterson, now 67, helped mobilize a task force of 40 steelmakers from around the world. Industry trade groups, the International Iron and Steel Institute and the American Iron and Steel Institute, helped steel companies pool research and development to come up with lighter, more competitive steels and marketing efforts to promote them.
As it turned out, the real threat wasn't plastic but aluminum. "When plastic died and aluminum came on," says Mr. Peterson. "We just swung our guns around and started shooting in a different direction."
He knew what a formidable opponent aluminum could be. As a young executive marketing tin products for U.S. Steel in the 1970s, Mr. Peterson watched the aluminum industry steal the beverage can business away from the steel industry. After that, he says he dedicated his life to not letting that happen in the auto business.
Mr. Peterson recalls a flight from Pittsburgh to Detroit in the mid-'90s. His seatmate was an Alcoa engineer, who was engrossed in a list of parts his company was planning to supply Chrysler for a retro new hot rod.
"He was looking at the Plymouth Prowler papers," says Mr. Peterson, who leaned back in his seat to get a better look. "I sat there reading everything that was on his lap." When he arrived in Detroit, Mr. Peterson told U.S. Steel engineers what he learned.
The engineers were thankful for the tip but concluded that the low-production Prowler wasn't as important as bigger-selling vehicle models, where aluminum was making gains, part by part.
Much Lighter
First came the engine blocks, then transmission-related components and suspension components, all of which can be made much lighter from aluminum than from cast iron on most models coming out of Detroit. Aluminum soon started making pitches on steel's realm -- body panels and parts that formed the body's structure.
High-end vehicles such as Audis, BMWs and Jaguars began using more aluminum components to improve performance. Meanwhile, stylized aluminum wheels on high-priced SUVs caught on with rap stars and soccer moms. Light-weight aluminum also had a starring role in the Clinton administration-backed "super car" project, an effort to design a vehicle that would get 80 miles per gallon.
Steel is an alloy of iron and up to 2% of carbon. The traditional method of making steel involves melting combinations of iron ore, scrap steel, limestone and other materials in a furnace. Aluminum is a silvery metal that is made by melting alumina, a powdery white substance that is made by refining a mined ore called bauxite.
At U.S. Steel, engineers and metallurgists continued to ratchet up research efforts in chemistry and steel-making processes to produce new varieties of "advanced high-strength steels." These include esoteric new products that are up to three times as strong as regular carbon steel. That means less steel is needed for the strength required on an automobile body part, reducing weight and bulk -- and often improving performance in crashes as well.
Auto makers have been impressed with the results. "Competition in the industry is causing us to look at affordable solutions for weight containment and reduction. That is driving us back to steel as an alternative," says Paul Geck, a steel architecture specialist who has been with Ford for 40 years.
Five years ago, U.S. Steel opened an automotive center in a high-tech area of Detroit known as Automation Alley. The new facility in Troy has several labs, including the computer lab that simulates crashes and a metallography lab to study steel types with high-powered microscopes. In a "dent testing" room, a machine resembling a swing set with a robot-like arm slams a rubber mallet onto a vehicle door, simulating golf-ball, hail-storm and shopping-cart assaults on different body panels. On weekends, the team's engineers are working on a pet project to redesign the runners and supply the steel for the U.S. luge team.
The center is partly what persuaded Mr. McGuire, a self-described motorhead who fixes up cars in his spare time, to join the company. With a background in metallurgy and auto engineering, Mr. McGuire had been working in the Detroit office of Montreal-based aluminum giant Alcan Inc.
After Alcan laid off his group in Detroit in 2001, he received offers from U.S. Steel and Alcoa. Although Alcoa's offer was 10% higher, he went with U.S. Steel. The company "had all the toys to play with for someone like me," he says.
When he arrived at U.S. Steel, Mr. McGuire told his new employers about Alcan's intentions to make aluminum for two upcoming Ford models, including the Freestyle, an aluminum-packed design Ford planned to push as a supplement to the aging Taurus model.
Since he hadn't signed a noncompete agreement when he left Alcan, Mr. McGuire's first project at U.S. Steel was to persuade Ford engineers to buy steel designs for the Freestyle instead of the aluminum he had been selling them while at Alcan. Armed with a calculator, engineering studies and color graphics, he showed how steel was more formable, cheaper and not much heavier than aluminum.
Those cars are hitting showroom floors this fall with steel fenders, trunk lids, engine hoods and lift gates.
Meanwhile, in recent years Alcoa has sharpened its focus and broadened its reach. Rather than simply pushing its weight advantage, Alcoa is developing aluminum-based systems in wiring, wheels, closures and "space frames," the supporting skeletal structures of cars. It's also developing partnerships with European car makers and Japanese aluminum producers to make stronger and lighter hoods. They are using engineering solutions such as spider-web designs, metal-shaping technologies and new materials such as aluminum foam to make other parts stronger.
Alcoa has 900 employees at its research lab in New Kensington, Pa., and hundreds more at five other facilities around the world, dwarfing U.S. Steel's research and development resources. U.S. Steel's sprawling research campus in Monroeville, Pa., has about 150 employees, down from about 2,000 workers during its heyday. Alcoa is developing new technologies to join aluminum with lasers, to develop "dura-brite" wheels that are easy to clean, and to create extra-large aluminum castings to make large auto parts more quickly and easily. They are patenting systems such as "thin-door technology," which they claim makes for lighter sliding doors in minivans and give four extra inches to interior space inside the van.
Write to Paul Glader at paul.glader@wsj.com5
New Alloys Let Steelmaker
Regain Edge on Aluminum
Mr. McGuire's Favorite Toys
By PAUL GLADER
Staff Reporter of THE WALL STREET JOURNAL
October 19, 2004; Page A1
DETROIT -- J.P. McGuire is a secret weapon for U.S. Steel Corp. in one of its most important battles: the struggle with the aluminum industry for the hoods, doors and bumpers of American cars.
Mr. McGuire, a 30-year-old engineer who used to work for the aluminum side, sniffs out when Detroit auto makers are designing new cars. He then swoops in to try to hold onto or win back ground in a fight that pits stronger, cheaper steel against lighter, more costly aluminum.
For years, aluminum makers made steady inroads, pitching their product as the fuel-efficient metal of the future. But lately, steelmakers have been battling back with lighter new alloys and a continuing price advantage despite this year's big run-up in steel prices. Mr. McGuire points to a spreadsheet showing that since his arrival in 2001 U.S. Steel has reclaimed 56 parts on eight vehicles that had switched to aluminum. That represents 51,000 tons of steel annually, with a value of about $35 million a year.
Cars are the biggest market for steel and a growing one for aluminum. That means Pittsburgh rivals U.S. Steel and Alcoa Inc. are battling for nearly every wheel, lift gate and drive shaft coming out of Detroit. It's a battle that has broad consequences for the rival metals, the auto industry and the environment.
Facing increasingly intense competition around the world, car makers are pinching pennies as never before, forcing them to seek not just the most fuel-efficient materials but also the cheapest. The tension sets up intense competition between U.S. Steel and Alcoa, which are both counting on the car industry for their long-term profits.
Led by Alcoa, aluminum has gained auto-market share every year in the past decade, going from 140 pounds to nearly 300 pounds per car and generating about $5 billion in sales for North American aluminum makers.
But the auto makers' financial squeeze has helped the steel industry regain momentum. General Motors Corp. recently said it will be using aluminum hoods or lift gates on only six of its 87 vehicles next year, down from nine this year. "It's a cost issue," says Jody Hall, an engineering-group manager at GM. Ford Motor Co. said half of the eight aluminum hoods it had been using have returned to steel in the past three years.
The more than 100% rise in spot steel prices this year has done little to change that. Aluminum, whose more-elaborate processing gobbles up huge amounts of energy, still costs about twice as much as steel. About 1,840 pounds of steel still go into every car, generating about $15 billion in sales for the domestic steel industry. (Other automotive suppliers who use steel have been harder hit by the rising prices. See related article1.)
U.S. Steel and Alcoa have dueling research centers dedicated to auto makers in Detroit. U.S. Steel's five-year-old facility is the size of a football field. Not to be outdone, Alcoa's center, opened this month, is nearly twice as big.
The two rivals snap up each other's engineers and snoop on each other's plans. In presentations to auto makers, they provide tit-for-tat comparisons. Steel offers algebraic formulas showing aluminum is only a third as dense as steel and runs simulated crashes in a computer lab to show how steel's greater density helps bumpers withstand impact.
Alcoa points to similar equations showing the weight advantage of its material -- an aluminum hood weighs 20% to 50% less than one made of steel -- and says its engineers are trying to close the gap on material strength with new designs.
The two companies compete most fiercely in the roughly $5 billion market for so-called closure panels, such as doors, engine hoods, trunks and lift gates. Aluminum makers claim a 10% to 50% weight advantage for those parts; steel claims it is 20% to 50% cheaper.
Those comparisons are hugely important for auto makers. "It's all about reducing weight and lowering costs," says Ron Traficante, senior manager of body materials at DaimlerChrysler AG. The prime equation for each individual part is the ratio of cost savings to weight savings. Most of the time, steel wins the equation. But sometimes a more expensive but lighter aluminum panel is adopted to keep the overall vehicle weight below certain limits.
The stakes are high for both companies. U.S. Steel survived brutal market conditions and a wave of consolidation in its domestic industry, securing its position as the largest U.S. steel company. Rising steel prices -- fueled by surging global demand, especially in fast-growing China -- have returned the company to profitability in recent quarters, but it still faces high pension and other costs. It is streamlining operations to focus on key markets, including sales to Detroit, which represents about 20% to 30% of the company's $9.4 billion in sales last year.
Alcoa, whose headquarters sit on the opposite side of the Allegheny River from U.S. Steel's in downtown Pittsburgh, has solidified its place as the largest aluminum company in the world with a $28 billion market capitalization. Alcoa is focusing on premium markets where it can add engineering value to its basic material. The auto industry accounted for about $2.8 billion of its $21.5 billion in sales last year, a figure it hopes to double by 2010.
Although aluminum was on the body of some early cars such as Henry Ford's Model T, steel replaced aluminum on that model and has dominated most other car bodies since.
Shifting Emphasis
That started to change in the early 1980s, when energy concerns and stronger fuel-economy rules shifted car makers' emphasis from strength to weight. Once-complacent steelmakers blanched when GM rolled out the Pontiac Fiero in 1984, the first mass-produced vehicle with a plastic composite body. Many engineers at Detroit's Big Three auto makers said their future was in plastics.
"We looked at plastic as the antichrist if you will," says Pete Peterson, who retired this month as head of automotive marketing at U.S. Steel and is regarded by many as the "godfather" of the steel industry's efforts to beat back competition from other materials.
Within months of the Fiero's debut, Mr. Peterson, now 67, helped mobilize a task force of 40 steelmakers from around the world. Industry trade groups, the International Iron and Steel Institute and the American Iron and Steel Institute, helped steel companies pool research and development to come up with lighter, more competitive steels and marketing efforts to promote them.
As it turned out, the real threat wasn't plastic but aluminum. "When plastic died and aluminum came on," says Mr. Peterson. "We just swung our guns around and started shooting in a different direction."
He knew what a formidable opponent aluminum could be. As a young executive marketing tin products for U.S. Steel in the 1970s, Mr. Peterson watched the aluminum industry steal the beverage can business away from the steel industry. After that, he says he dedicated his life to not letting that happen in the auto business.
Mr. Peterson recalls a flight from Pittsburgh to Detroit in the mid-'90s. His seatmate was an Alcoa engineer, who was engrossed in a list of parts his company was planning to supply Chrysler for a retro new hot rod.
"He was looking at the Plymouth Prowler papers," says Mr. Peterson, who leaned back in his seat to get a better look. "I sat there reading everything that was on his lap." When he arrived in Detroit, Mr. Peterson told U.S. Steel engineers what he learned.
The engineers were thankful for the tip but concluded that the low-production Prowler wasn't as important as bigger-selling vehicle models, where aluminum was making gains, part by part.
Much Lighter
First came the engine blocks, then transmission-related components and suspension components, all of which can be made much lighter from aluminum than from cast iron on most models coming out of Detroit. Aluminum soon started making pitches on steel's realm -- body panels and parts that formed the body's structure.
High-end vehicles such as Audis, BMWs and Jaguars began using more aluminum components to improve performance. Meanwhile, stylized aluminum wheels on high-priced SUVs caught on with rap stars and soccer moms. Light-weight aluminum also had a starring role in the Clinton administration-backed "super car" project, an effort to design a vehicle that would get 80 miles per gallon.
Steel is an alloy of iron and up to 2% of carbon. The traditional method of making steel involves melting combinations of iron ore, scrap steel, limestone and other materials in a furnace. Aluminum is a silvery metal that is made by melting alumina, a powdery white substance that is made by refining a mined ore called bauxite.
At U.S. Steel, engineers and metallurgists continued to ratchet up research efforts in chemistry and steel-making processes to produce new varieties of "advanced high-strength steels." These include esoteric new products that are up to three times as strong as regular carbon steel. That means less steel is needed for the strength required on an automobile body part, reducing weight and bulk -- and often improving performance in crashes as well.
Auto makers have been impressed with the results. "Competition in the industry is causing us to look at affordable solutions for weight containment and reduction. That is driving us back to steel as an alternative," says Paul Geck, a steel architecture specialist who has been with Ford for 40 years.
Five years ago, U.S. Steel opened an automotive center in a high-tech area of Detroit known as Automation Alley. The new facility in Troy has several labs, including the computer lab that simulates crashes and a metallography lab to study steel types with high-powered microscopes. In a "dent testing" room, a machine resembling a swing set with a robot-like arm slams a rubber mallet onto a vehicle door, simulating golf-ball, hail-storm and shopping-cart assaults on different body panels. On weekends, the team's engineers are working on a pet project to redesign the runners and supply the steel for the U.S. luge team.
The center is partly what persuaded Mr. McGuire, a self-described motorhead who fixes up cars in his spare time, to join the company. With a background in metallurgy and auto engineering, Mr. McGuire had been working in the Detroit office of Montreal-based aluminum giant Alcan Inc.
After Alcan laid off his group in Detroit in 2001, he received offers from U.S. Steel and Alcoa. Although Alcoa's offer was 10% higher, he went with U.S. Steel. The company "had all the toys to play with for someone like me," he says.
When he arrived at U.S. Steel, Mr. McGuire told his new employers about Alcan's intentions to make aluminum for two upcoming Ford models, including the Freestyle, an aluminum-packed design Ford planned to push as a supplement to the aging Taurus model.
Since he hadn't signed a noncompete agreement when he left Alcan, Mr. McGuire's first project at U.S. Steel was to persuade Ford engineers to buy steel designs for the Freestyle instead of the aluminum he had been selling them while at Alcan. Armed with a calculator, engineering studies and color graphics, he showed how steel was more formable, cheaper and not much heavier than aluminum.
Those cars are hitting showroom floors this fall with steel fenders, trunk lids, engine hoods and lift gates.
Meanwhile, in recent years Alcoa has sharpened its focus and broadened its reach. Rather than simply pushing its weight advantage, Alcoa is developing aluminum-based systems in wiring, wheels, closures and "space frames," the supporting skeletal structures of cars. It's also developing partnerships with European car makers and Japanese aluminum producers to make stronger and lighter hoods. They are using engineering solutions such as spider-web designs, metal-shaping technologies and new materials such as aluminum foam to make other parts stronger.
Alcoa has 900 employees at its research lab in New Kensington, Pa., and hundreds more at five other facilities around the world, dwarfing U.S. Steel's research and development resources. U.S. Steel's sprawling research campus in Monroeville, Pa., has about 150 employees, down from about 2,000 workers during its heyday. Alcoa is developing new technologies to join aluminum with lasers, to develop "dura-brite" wheels that are easy to clean, and to create extra-large aluminum castings to make large auto parts more quickly and easily. They are patenting systems such as "thin-door technology," which they claim makes for lighter sliding doors in minivans and give four extra inches to interior space inside the van.
Write to Paul Glader at paul.glader@wsj.com5
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