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Economics tilt toward US suppliers and absolute candor

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If you go to your Honda Motor Co. dealer to check out a new car, you might notice that the sticker says the transmission was made in Japan. And, sure, some car models are assembled in Japan and imported.

But for cars made in North America, much of the steel comes from American mills. And that's true for many "new domestic" automakers, including Honda and Toyota Motor Corp.

The new domestics can meet most of their steel needs in North America, according to representatives for both Honda and Toyota. And high ocean freight costs and the weak U.S. dollar only boost the incentive to source steel from the region.

While some grades of steel are difficult to source domestically, most U.S. mills are producing more high-strength steels than in the past. Toyota even welcomes the prospect of more new domestics setting up assembly plants in the United States because it means more mills will make steels to the specifications of the new automakers, a Toyota spokeswoman said. "It helps Toyota because it strengthens the business case for further investment in steel development and manufacturing in North America."

Honda's operations in North America source nearly all of their steel from suppliers in the United States and Canada, and the automaker is boosting the amount of high-strength steels in vehicles like the Honda Accord sedan and the Pilot sport utility vehicle, a spokesman for the company's North American purchasing operations said. "There are challenges in the marketplace in procuring steel generally but also for specialty steels."

The key to keeping both mills and automakers happy good communication. Honda needs to understand the capabilities and equipment of the mills that supply it, the spokesman said, and mills have to know what kind of steels Honda is looking for. "Because we are ramping up the use of (high-strength steels), the mills have to ramp it up as well," he said. "It's not like you go out on the spot market to buy this."

The Honda spokesman, like executives at most automakers, declined to comment on specific details of their steel contracts with mills. "There are always the dynamics of negotiations involved in it," he said.

But the relationship between mills and automakers doesn't have to be adversarial, the spokesman said. "If a steel mill needs to change their process to increase production of certain types of steel, we work with them."

In addition, Honda can tell mills what kinds of volumes to expect over the long term. "Any supplier needs to feel comfortable if they are going to invest in new equipment or processes that the business is going to be there for a while and not disappear," he said.

But as even steelmakers acknowledge, there are problems working with some high-strength steels, the Honda spokesman said. While strong and lightweight, some grades of high-strength steels can prove brittle during the stamping process and difficult to form.

Nonetheless, high-strength steel content continues to increase as automakers build vehicles that are lighter, more fuel efficient and safe, the spokesman said, adding that over the years Honda and its suppliers have confronted and overcome similar problems.

Nissan Motor Co. Ltd. declined to comment. A spokeswoman for BMW AG's operations in the United States said the company was unable to comment on where it sources steel because it comes from outside stampers.


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