Just as the price of oil has skyrocketed due to increased global demand, the price of steel is sharply increasing on the back of rising demand. That’s bad news for the automakers — and ultimately the car buying public — as today’s cars contain between 2,400 and 3,000 pounds of steel.
Most car makers have contracts with steel makers, but rising raw material prices have forced the steel makers to impose a surcharge of about $250 per ton. In some cases the price per ton has doubled, which has raised the cost to produce a vehicle by about $500 — an increase that will ultimately be passed onto the car buyer.
Another reason for the price spike is the lack of foreign competition in the U.S. steel market. Because of the weak state of the dollar, the world’s steel makers are disinclined to enter the market because the risks far exceed the possible rewards.
In addition to steel, rising raw material costs are also pushing up the cost of several other key ingredients for the auto industry — including platinum (used in catalytic converters) and aluminum.
“The automakers are between a rock and a hard place,” Pete Peterson, a steel industry consultant and former director of automotive marketing with U.S. Steel Corp., told Automotive News.
Although some automakers such as General Motors say they will not pay the surcharges, they might not have much say in the matter. “We will not be in a position to assure continuity of supply,” says one steel industry insider. “Why should I sell to GM at a lower price when I can sell steel to the energy market and other strong markets?”
Although the situation is far from resolved, we’re pretty sure the cost of new cars will be drastically increasing over the next few months.
