Soaring steel prices continue to dictate the direction of the auto industry.

Soaring steel prices continue to dictate the direction of the auto industry. And it’s starting from the bottom. Steelmakers are raising prices because their own raw materials have grown more expensive. Mining companies around the world have raised spot prices for coal, iron ore, manganese and other key steel-making ingredients. As a result of the price increase, the auto industry has to decide whether to negotiate with steelmakers, or increase the cost of new automobiles. “The automakers are between a rock and a hard place,” said Pete Peterson, a steel industry consultant and former director of automotive marketing with U.S. Steel in an interview with Financial Week. According to Auto News, in November the spot price for hot-rolled band, used for vehicle body panels, was around $559 per ton, up $381 in early June. This rapid increase has automakers looking at even higher prices in 2010. What typically happens is that automakers typically buy steel on long term contracts, and buying in quantity allows both automakers and suppliers to push down and stabilize prices. Currently, with poor market conditions, spot prices are often better than contract prices as a result of a lower volume of steel. A solution? The auto industry needs to quickly develop cars that function with less steel, to stall further bullying from the steel and mining companies. That will trim down the prices automakers pay for steel, and force the hand of steel companies to slash their prices because they won’t be producing as much steel. Automakers aren’t going to pay more for less. Everywhere in business, companies are trimming the excess fat. As David Streitfield pointed out in his November 22nd New York Times article, “Bankruptcy changed the rules, allowing the steel makers to unload billions of dollars in pension obligations onto the government’s Pension Benefit Guaranty Corporation and to cut more than 200,000 workers from their supposedly guaranteed medical care.” The same concept applies for auto makers. By shutting down production of certain vehicles, laying off workers, terminating sectors of business that are under producing, and cutting management layers, they are able to save billions of dollars. Subsequently, by navigating to more progressive means of production, they not only save costs but are seen as innovators in one of America’s most traditional industries. You’ve got to crack a few eggs to make an omelette. This story was provided by Brian Vandeputte, a contributor for Capital Steel & Wire, a steel distributor located in Lansing, Michigan.