The automotive sector uses a wide range of materials in manufacturing. Metals such as aluminum and steel, advanced plastics and other materials such as glass are used in most modern automobiles. The pricing of materials is a significant expense for automakers and fluctuations in price may change profit margins. Vehicle composition is changing as a result of new safety and fuel economy standards. Cars and trucks are becoming lighter and increasingly made with aluminum as a substitute for steel. Aluminum demand is expected to continue increasing as advanced manufacturing methods make aluminum easier to weld and more competitive with the use of steel. Investors interested in the automotive sector may also consider investments in the basic materials sector. Changing demand for materials used to manufacture vehicles may benefit investment in the materials of new manufacturing methods.

In 2015, raw materials and steel were 47% of the manufacturing cost of vehicles. The most significant components include steel, iron, plastic, aluminum and glass. Fluctuations in material pricing may significantly impact the cost of production since nearly half of the manufacturing cost is due to the pricing of materials. Steel composes around 22% of a vehicle and represents a substantial cost. Aluminum is more expensive than steel but is growing in popularity as an alternative. Aluminum composition is lighter than steel and helps improve fuel economy. As fuel consumption standards increase, aluminum use becomes more common. European vehicles began using more aluminum before U.S. automakers. Use by American industry is expected to increase demand for aluminum by 40% along with global demand for the commodity. Iron is a lesser component of cars that has a mild impact on prices but is still sensitive to economic conditions.

Plastic is another significant component of many cars and trucks. Advanced plastics such as polycarbonate and polyurethane are used in car interiors, exteriors and in manufacturing processes. Mid-sized cars now contain an average of 15% plastic materials. This percentage is increasing as plastic technology improves. Plastics also contribute to making cars lighter and therefore more fuel-efficient. These materials also allow greater flexibility than metals and are more readily made into a variety of designs. Hard plastics and plastic foams make up much of the overall plastic content of cars and offer an easy-to-use material for manufacturers.

Investors interested in the automotive sector may also choose investments in automotive materials. Companies in the materials sector offer securities that may be purchased for investment. Many of these materials companies are poised for growth as global demand for and consumer spending on automobiles increases. Fuel-efficient materials demand will likely increase as design standards increase in countries concerned about environmental impact. Improved technology will likely change the proportion of materials used and investors may profit handsomely as a direct result.

  1. What raw materials do auto manufacturers use?

    Learn about some of the raw materials required for auto manufacturing, including iron for steel, aluminum, rubber, and petroleum ... Read Answer >>
  2. On which financial statement does a company list its raw material costs?

    Discover what items are raw materials, how raw material costs affect businesses, and where these costs are recorded on a ... Read Answer >>
  3. What types of companies are in the automotive sector besides auto manufacturers?

    Explore the relationships between automobile manufacturers and the numerous other types of companies that work in the automotive ... Read Answer >>
  4. How much impact does government regulation have on the automotive sector?

    Learn about how government regulation affects the automotive industry in terms of design, safety features, fuel-economy and ... Read Answer >>
  5. What is the difference between work in progress (WIP) and raw materials in accounting?

    Learn about the difference in inventory financial accounting between works in progress and raw materials, as reported in ... Read Answer >>
  6. What is the prime cost formula?

    Prime costs are the costs directly attributed to the production of a product. Before calculating prime costs, direct costs ... Read Answer >>
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