SEOUL (Reuters) - About four years ago, Hyundai Motor considered shifting from steel to aluminum body parts for its Genesis sedan to make it lighter, more fuel-efficient and more competitive with German luxury marques, two people familiar with the matter said.
Its affiliate Kia Motors made a similar move, building test versions of its premium K9 sedan, called K900 in the United States, using aluminum in body panels including the door, hood and trunk lid, two other people told Reuters.
But the South Korean duo, which together rank fifth in global auto sales, opted for steel instead, deterred by the cost and, according to two of those individuals, hamstrung by close ties with sister steelmaker Hyundai Steel Co.
As western carmakers such as Audi AG and Ford Motor Co lead the way in using aluminum, which is lighter but more expensive than steel, their Asian rivals are reluctant to invest in the costly retooling required that would disrupt existing manufacturing processes and supplier relationships.
"A really big challenge at the moment for the Asian companies is to find out how they should behave in this context of vehicles coming under more pressure to be lighter," said Truls Thorstensen, president and CEO of EFS Business Consultancy.
Automakers in Asia often prefer evolutionary upgrades that enable them to use existing plants and make multiple models on the same assembly lines; western rivals tend to make wholesale product changes that require re-engineering of factories. That's forcing Asian car companies to find other ways to cut weight and emissions as tighter U.S. and European fuel economy and emissions rules drive a push for lighter cars.
"If you are free to do whatever you want, the decision might be easier to go in the direction of aluminum or light weight," Thorstensen said.
Hyundai declined to comment on what materials it considered in product development. At Kia, a spokesman said the company did not use aluminum body parts in K9 test versions, and declined to comment on whether it considered using the material during the car's development.
Aluminum demand by Asia's auto industry is expected to rise 71 percent by 2016, far below a projected five-fold jump in North America, according to an internal forecast by Atlanta-based Novelis Corp [NVLXC.UL], the biggest maker of flat-rolled aluminum and a unit of India's Hindalco Industries.
In 2016, Asia will account for less than a tenth of total auto industry aluminum consumption, while North America and Europe will have about 45 percent each, Novelis predicts. That's despite expectations that Asia will continue to account for over half of global vehicle output, according to IHS Automotive.
"This substitution from steel is being driven mainly by strict emissions regulations, especially in North America, and is a game changer for the aluminum rolling sector," said Charlie Durant, senior consultant at CRU, a metals consultancy. "In Asia, the emissions regulations are less stringent and vehicles tend to be much smaller."
"The relative cost of aluminum sheet is seen as a prohibitive factor, so it's in regions with the most stringent legislation ... that this material will be most widely adopted," he added in emailed comments to Reuters for this article.
European luxury brands such as Volkswagen AG's Audi and BMW AG are expanding their use of aluminum in high-end, high-margin cars. Ford will begin building its flagship F-150 pickup with an aluminum body later this year, making it the first such mass-market vehicle.
Hyundai, Toyota Motor Corp and other Asian automakers, however, mostly produce mass-market cars on highly efficient assembly lines that are often decades old. They don't sell luxury cars in high volumes and can't demand the sorts of prices that Audi and BMW can.
Aluminum can cost some four times more than steel, although aluminum is up to 30 percent lighter than conventional steel and 15 percent lighter compared to advanced, high-strength steel, according to consultancy Wood Mackenzie. A switch to aluminum increases not only materials costs but requires heavy investment to overhaul production lines.
"If you start making a completely different architecture for Lexus from Toyota or Infiniti from Nissan, you will get into a cost problem because the numbers sold and the premium price they get is not similar to the Germans," Thorstensen said. "All manufacturers in Asia face that same problem. They can't get the premium price so they have to be much more careful."
The previous version of Hyundai's Genesis had an aluminum hood, but the company switched to steel for the current model, launched in late 2013, making it heavier and less fuel efficient than its predecessor, two of the people said.
An aluminum car hood weighs about half of one made of steel, according to Novelis. Every 10 percent reduction in vehicle weight improves fuel economy by 6-8 percent, according to the U.S. Department of Energy.
In 2010, when Hyundai began developing the current-generation Genesis, shaving weight and increasing fuel economy was a concern, said one of those familiar with the matter.
At a meeting at the automaker's research center on the outskirts of Seoul, engineers proposed expanding the use of lightweight aluminum from the hood to other outer body panels and even frames, said the person, who was present. But Hyundai went in the opposition direction, swapping aluminum with steel even for the hood, because of its ties with Hyundai Steel and the higher costs associated with aluminum.
"This was a step backward for Hyundai," the person said.
The latest Genesis gained as much as 390 pounds (177 kg) from its predecessor, launched in 2008, and weighs 181 pounds more than BMW's rival 535i.
U.S. chief Dave Zuchowski said Hyundai has "put a lot of additional weight into structural rigidity" to pass tougher U.S. crash tests. "We used to say we'd like to reduce the weight in the car 10 percent as we bring them out. In this world, with ... crash requirements and things like that, you're not going to be able to do that," he told reporters in Detroit last month.
Instead of embracing aluminum, Asian automakers are working with steelmakers to develop lighter, stronger steel, while taking other measures to improve fuel efficiency including upgrading conventional engines and parts without having to make heavy modifications to manufacturing facilities.
"Hyundai Motor is under enormous pressure to cut costs since it's a volume, mass-market carmaker," Woo Yoo-cheol, president and CEO of Hyundai Steel, told Reuters. "The most important thing is to stay competitive in the market. They believe it is much more competitive to use steel for their flagship models."
For now, Japanese carmakers limit aluminum mostly to parts of hybrid and premium vehicles, such as Toyota's Lexus IS. Honda Motor has developed technology to combine aluminum and steel for select parts in the U.S. versions of its Acura RLX and Accord. "When we consider mass production, all-aluminum is still difficult," Honda spokeswoman Yuka Abe told Reuters.
Nissan Motor last year announced a plan to expand the use of high-tensile steel, which is stronger and lighter than conventional steel, in up to 20 percent of parts installed in its new production models starting in 2017.
"We continue to use aluminum in vehicle areas such as hoods, doors and trunk areas on certain models - such as the GT-R and 370Z high-performance sports cars. Going forward, more high-strength steel will be used in key structural areas," said Chris Keeffe, a spokesman for Nissan.
Asian automakers stick with steel in part because it is plentiful, with two-thirds of global supply made in the region.
Novelis will complete an auto sheet plant in China late this year and is getting plenty of inquiries from Asian automakers about using aluminum, although it will take 4-5 years for Chinese automakers and 2-3 years for Korean and Japanese firms to use it in significant amounts, said Jeff Wang, its Asia automotive sales director.
He predicted western automakers using aluminum in China-made cars would spur Asian rivals to follow suit.
Wood Mackenzie said it was not certain that aluminum body sheet would find its way into mass-market cars.
"Suppliers of automotive steel parts will fight back with attractive innovations and pricing as this is a market that steel producers are unlikely to give up readily," it said.
Additional reporting by Norihiko Shirouzu in BEIJING, Melanie Burton in SYDNEY, Ben Klayman in DETROIT and Yoko Kubota in TOKYO; Editing by Tony Munroe and Ian Geoghegan