When it comes to steel and cars, it pays to be different

When it comes to steel, the automotive industry is big business. According to Warrian and Mulhern in their paper, Knowledge and Innovation in the Interface Between the Steel and Automotive Industries: The Case of Dofasco, “The key motivation behind innovation in the steel industry has been the revolution in vehicle manufacturing, as automotive steel represents the largest source of revenue for integrated mills.” This blog post examines the relationship between the innovation motivation, and revenue.

Compared to standard bulk steel used in most construction applications, and rebar produced by cheap EAF furnaces, the steel demanded of steel producing firms by automotive companies is on another planet. The demands are exceptionally stringent, requiring exact metallurgical compounds with very specific properties to be produced over and over and over again, without any hint of difference in product. As we discussed in class, if Ford requires a very specific kind of steel to produce its F-150 frames, steel it requires for weight, strength, performance, and crash test purposes, and steel it has spent millions to calibrate its machines around, and your firm is contracted to deliver that steel, you have big business, but your job is not easy. If you fail to deliver steel, or deliver steel that does not meet Ford’s very specific quality requirements, you could be fined millions of dollars.

An example of various kinds of steel used in a modern car.

An example of various kinds of steel used in a modern car.

With so much risk accepted, why would a steel firm agree to produce specialized steel for an automotive supplier? Because the rewards are enormous. The kind of steel firms specializing is automotive steel produce are what is referred to as “value added steel.” At each step in the process of producing whatever steel their client has requested, these firms are adding some value to the material. By investing heavily in R&D in order to be able to add value that other firms cant, large rewards can be gained. For example, the firm producing Acura’s special door ring steel is currently realizing large profits because they are the only ones able to add value to steel in that way. The concept of value added is drastically different from the sheer quantity game that is common construction steel and rebar. By becoming involved in specialized products and adding value to their steel, firms are able to move away from the commodity nature of steel.

However, to truly realize large profits from adding value to a steel, it is helpful to be the only, or one of just a few firms, who can produce the specific kind of steel required. Because having a unique and useful product can be such a boon for profits, firms invest heavily in R&D. Warrian and Mulhern conclude, “In the face of international consolidation of the industry, it would appear that Dofasco’s future success depends on the strategic deployment of R&D toward the areas that are the company’s dual strengths: customer service and process innovation.”



Peter, Warrian, and Celine Mulhern. “Knowledge and Innovation in the Interface between the Steel and Automotive Industries: The Case of Dofasco.” Regional Studies 39.2 (2005): 161-70. Print.

Steel Types


6 thoughts on “When it comes to steel and cars, it pays to be different

  1. How difficult is it for these steel producers to adapt their production methods to fit the new styles of cars that are being developed and the ever increasing safety and technology required for ever developing vehicle models? I am wondering if a large shift to electric vehicles in the next half century would require a complete overhaul of the production line in these large plants in order to satisfy the designs of battery powered vehicles?

    • One big change that is coming, and one that worries steel firms immensely, is the increase in the use of aluminum. The Ford F-150, the best selling passenger vehicle in the world, moved to an all aluminum body with the 2015 model year.

      The reason behind push for aluminum is simple: weight. As CAFE standards become more and more strict and automakers become more desperate to shave every pound and increase gas mileage, aluminum looks more and more attractive. The challenge for steel firms is to continue developing high strength steels with lower and lower weights.I have a feeling you will see an increased emphasis on for steel firms R&D on both lighter weight steel, and ways to use less total metal with comparable strength.

    • The architecture of a vehicle is driven by … well, driving and safety and NVH (noise vibration handling) and environmental issues. Better fuel efficiency (be the vehicle electric, gasoline or diesel) and lower emissions come from lower weight. Crash worthiness comes from mass and stiffness to deflect forces around you as passenger, combined with crush zones to absorb energy (= let you stop less quickly, fewer g’s). Mass helps vehicles stay on the road, too – tires get better traction. That’s in tension with emissions / efficiency. So while you have more ability to shift weight distribution in an electric vehicle (but initially more total weight), the underlying desire for a strong, light vehicle is unaffected. Materials advances give stylists and development engineers additional options. But it’s the car industry that must adapt to the limitations of materials, not the other way around. Steel can only bend and stretch so much; there are things that stylists want that can’t readily be manufactured.

      Aluminum is less friendly in stamping processes. It’s lighter, but a lot more expensive. Joining aluminum (welding, for example) is more challenging than with steel, both because of the nature of aluminum and because in many manufacturing environments it quickly builds up an oxide coating (“rust” on steel) that is harder to work around. Joining dissimilar metals is also problematic. The best solution at the moment seems to be “structural adhesives,” that is, gluing a car together.

      So electric vehicles per se don’t mandate new types of steel or aluminum. But if steel firms can develop new alloys and forming technologies, that can both enable incremental changes in vehicle engineering and on the margin shift demand from aluminum to steel.

  2. I’m also curious as to how these highly specific steel companies ensure a profitable, long term business contract. How far ahead does the contract extend, and what happens if the model is discontinued? Meanwhile, does the steel company invest more research on how to improve their existing products, or on developing different products altogether?

    • This is a good question. My sense is that contracts are for life of production, or about 4 years on average [sheet metal is changed more often, but normally uses existing materials]. It is not common to discontinue a model mid-life, but predicted volumes aren’t necessarily on the mark. Thus for tooling you find versions of take-or-pay contracts, where a car firm commits to a certain volume, and pays a penalty (a pro-rata share of tooling costs) if volumes are low, and gets a price reduction if volumes are high.

      But for steel, my sense is that companies come up with new steels out of their own pocket, and then market to end users. Now they’re in touch with end users to have a sense of what can potentially be sold. But in the case of materials, the risk is generally lies with the suppliers rather than the users.

      I am not sure that the “new” vs “incremental” distinction is the best categorization for materials. It’s more about adjusting margins, tweaking metallurgy (a combination of alloying and processing) is partly to mesh with how customers are set up. Some car companies have a lot of experience with hydroforming so wouldn’t be interested in hot stamping. Likewise firms have slight variations in rust-proofing strategies and paint primers and welding/joining know-how that make improving certain aspects of a steel more useful to one firm than another.

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