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Look Out U.S. Steel, Here Comes The Aluminum Truck!

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Steel has dominated the auto industry for decades because of its strength. Ford's (NYSE: F  ) willingness to put aluminum in its heavy duty F-150 trucks, however, could be marking an important turning point in the auto industry. If customers don't care about the switch, steel looks likely to lose its hold.

Not what matters
When examining the use of alternative materials in its automobiles, Ford made sure to talk to other companies that had already made the shift. Jim Farley, the company's global marketing chief, told Bloomberg that all of the companies said about the same thing, "don't spend too much time talking about the advanced materials, because that's not what customers want to know." Customers care about what a truck can do, not what it's made of.

On that score, Ford's shift to aluminum saves around 700 pounds. Since it's easier to push lighter objects, roughly speaking, that weight loss plays a big role in the truck's nearly 30 miles per gallon highway fuel efficiency. In fact, this same reason is why BMW's (NASDAQOTH: BAMXY  ) first all electric vehicle, the i3, uses carbon fiber.

It was, practically speaking, a great way for BMW to offset the weight of batteries. The problem for both Ford and BMW, however, is cost. Both aluminum and carbon fiber are more expensive than steel. While high-end BMWs can probably pull off a premium price tag for its wares, it remains to be seen how much a truck buyer is willing to spend for better gas mileage.

Changes are on the horizon
The other big issue on the cost front is retooling factories to use alternative materials. Such overhauls are costly and will slow the adoption of aluminum and carbon fiber. Which is good news for a company like AK Steel (NYSE: AKS  ) that gets about half of its business from the auto sector.

It also gives AK Steel and its competitors more time to work on lighter versions of their steel. In fact, during the company's third quarter conference call, CEO James Wainscott noted that the company's auto shipments are actually growing "faster than the overall market's growth."

So despite the shifts taking shape at Ford and BMW, it looks like steel companies that provide the best products and service still have a place at the table. But, the long-term trend is going to be toward lighter weight and strong (or even stronger) materials gaining "share of car."

What to watch?
That's going to be a boon for companies like Hexcel (NYSE: HXL  ) and Cytec Industries which both make carbon fiber. The pair are big in the aviation space, which easily proves the durability of their offerings. The big stumbling block is price.

But as more and more companies start looking to carbon fiber, Hexcel and Cytec will be able to use volume to bring costs down. If you take a deep dive on this pair, think beyond the current hot issue of carbon fiber in aviation—consider the type of growth these companies could see if they started to gain a material share of your car.

Aluminum makers like Alcoa (NYSE: AA  ) , however, will probably see a more immediate benefit. In fact, the company expects the use of aluminum to double in the auto space by 2025. And Alcoa is gearing up now for that demand, recently completing a $300 million expansion at a facility meant specifically to serve the auto sector.

The time is nigh
Aloca's CEO, Klaus Kleinfeld, believes that "2014 marks the beginning of dramatic growth for aluminum in the auto sector." If he's right, autos will offer notable growth opportunities for aluminum makers right now. And the F-150 will turn out to be an important turning point for steel makers like AK Steel, but not in a good way. That said, BMW's foray into carbon fiber may be early, but it's another trend to watch closely since adding such a large market would be a huge boost to business at makers like Hexcel and Cytec.

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Reuben Brewer

Reuben Gregg Brewer believes dividends are a window into a company's soul. He tries to invest in good souls.

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