Hyundai Motor Turns to Group Steel Unit to Hit Fuel-Economy Goal

Hyundai Motor Co., drawing on ties to Hyundai Steel Co., plans to more than double the proportion of high-strength steel used in its vehicles by 2015 as the carmaker seeks higher fuel efficiency and lower weight across its lineup.

By using advanced forms of the metal that match or exceed other Korean and Japanese steelmakers’ alloys in cost and performance, Hyundai Motor will raise the ratio of high-tensile steel in vehicles to 50 percent from 18 percent, said Cho Won Suk, senior executive vice president of research at Incheon, South Korea-based Hyundai Steel. The carmaker is counting on 300 metallurgists and steel researchers at Hyundai Steel to create high-strength, light alloys tailored to its models, he said.

“Hyundai Motor has great ambition to reduce car body weight,” Cho said in an interview last week. “Light-weighting designs will be one of the most important factors in enhancing fuel economy.”

Rules intended to cut carbon emissions linked to climate change, along with oil-price swings, are pushing automakers to develop more efficient engines and lighter vehicle frames. In the U.S, where Seoul-based Hyundai Motor was the fastest-growing mass-market automaker last year, regulators are working on rules that may require fuel economy of 47 miles per gallon to 62 mpg by 2025, compared with a 27.3 mpg requirement for 2011 models.

Third Mill

Hyundai Steel, 21 percent owned by the carmaker’s affiliate Kia Motors Corp., is adding a third mill with at least 100 more metallurgists to help Hyundai Motor cut vehicle-frame weight 10 percent by 2015, Cho said.

Hyundai Motor’s fuel-efficiency strategy revolves around lighter vehicles and small, direct-injection and turbo-charged engines such as those used in its Sonata sedan and Elantra small cars, said John Krafcik, head of the carmaker’s U.S. sales unit.

Shares in Hyundai Motor rose 1.1 percent to 187,000 won as of 9:46 a.m. in Seoul. Hyundai Steel rose 2.6 percent to 140,500 won.

For Hyundai Motor, the benefits of an affiliated steel company are stable supply, faster development time for products and the ability to resolve quality issues quickly, Cho said.

No other major carmaker boasts as close a relationship with its steel unit, let alone one closely integrated with its auto engineers, to design and supply needed materials, he said.

Hyundai Motor chief Chung Mong Koo is also chairman of Kia and Hyundai Steel. Chung, 72, holds a 12.5 percent stake in the steelmaker as well as 5.2 percent of Hyundai Motor, according to data compiled by Bloomberg.

Among smaller automakers, India’s Tata Motors Ltd. is part of the Tata Group, which includes Tata Steel Ltd.

Best Option

Using more so-called high-tensile strength steel appears to be the best option for meeting weight and safety improvements, said Eric Noble, president of industry consultant The Car Lab in Orange, California.

Alternatives such as aluminum, magnesium or carbon fiber “are too expensive or unproven for high-volume manufacturing,” Noble said.

Hyundai Steel opened two mills in 2010 capable of supplying 8 million tons per year of the metal. The third blast furnace will have an annual capacity of 4 million tons.

Of the total capacity of the three mills, steel used in cars and home appliances will account for about 8.5 million tons, part of which will go to Hyundai Motor and Kia.

Hyundai isn’t alone in pushing for rapid improvements in high-strength steel and may trail Japanese and European rivals. ThyssenKrupp AG, Germany’s biggest steelmaker, is an industry leader in specialized, light alloys for autos, Noble said.

‘Low-Hanging Fruit’

“It’s unlikely there’s a lot of low-hanging fruit for Hyundai’s metallurgists,” Noble said. “Steel is not a new material in the auto industry.”

Honda Motor Co., Hyundai’s rival for U.S. fuel-economy leadership, began using high-strength steel in 2001, and Honda and Acura models built in North America already contain about 50 percent high-strength steel, said Robert Zummallen, a principal engineer for Honda’s U.S. design group in Raymond, Ohio.

The new Alabama-built Odyssey minivan that went on sale in 2010 contains 59 percent high-strength steel, Honda said.

Hyundai Motor also buys steel from South Korea’s Posco, the world’s third-largest steelmaker, Japan’s Nippon Steel Corp. and JFE Holdings Inc., said Cho, who has a doctorate in metal engineering from the University of Michigan in Ann Arbor.

Hyundai Motor’s access to its own steel unit may help it negotiate better prices with suppliers, said Chu Wu Jin, a professor at Seoul National University who studies the auto industry.

Hyundai Steel’s standard grades of hot-rolled steel cost about 900,000 won ($815) a ton, according to data from the company. Average costs for high-strength alloys aren’t available as prices generally are negotiated directly between carmakers and suppliers, said Ron Krupitzer, vice president of the American Iron & Steel Institute unit that promotes the use of advanced steel grades for automobiles.

Hyundai Motor began providing fuel-economy data this month for its U.S. lineup based on sales, using U.S. Corporate Average Fuel Economy, or CAFE, rules, an industry first. Hyundai-brand autos averaged 34.7 mpg in January using the CAFE methodology.

To contact the reporters on this story: Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net; Sungwoo Park in Seoul at spark47@bloomberg.net

To contact the editor responsible for this story: Kae Inoue at kinoue@bloomberg.net

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