Raw material prices are hovering near a six-year high as automakers wrestle with volatile costs of steel, aluminum, copper and plastics.
This story by David Sedgwick originally appeared in Automotive News Canada.
In August, raw material costs for North American-built vehicles averaged $2,000 (all figures USD) a unit – about $221 more than a year earlier – according to the New York consulting firm AlixPartners.
Four commodities account for the bulk of a vehicle’s raw material cost: steel, aluminum, plastic resin and copper. The price of copper and some other materials “have started to come down from their peak in May and June,” said Dan Hearsch, a managing director of AlixPartners.
But there’s a catch. U.S. manufacturers must pay a 10 percent tariff on imported aluminum, so the price of that metal could prove volatile. And the AlixPartners index – which derives aluminum prices from the London Metal Exchange – does not yet reflect the tariff.
In June, the White House subjected Canada and Mexico to U.S. aluminum and steel tariffs. Automakers are starting to feel the impact.
In September, Ford CEO Jim Hackett acknowledged that the tariffs cost his company $1 billion in profits. And in July, General Motors said second-quarter commodity costs were $300 million higher than a year earlier.
Hot-rolled steel prices have jumped 28 percent to 40 cents per pound over the past year, according to AlixPartners. Automakers buy most of their steel in North America, but certain types – such as stainless and electrical steel – are imports subject to the 25 percent U.S. tariff.
Meanwhile, plastic resin prices rose 31 percent as feedstock costs jumped over the past year.