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Did aluminum supplier give up its edge?
When Ford Motor Co. chose Alcoa's aluminum for the F-150 pickup, that contract came at a big price for the supplier, says one of its owners, who is now battling for control of the company.
According to a document published April 11 by the New York hedge fund Elliott Management, Ford asked Alcoa Inc. to share with competitors its patented aluminum bonding process -- dubbed Alcoa 951.
Alcoa's agreement to do so enabled rival aluminum supplier Novelis to gain a competitive edge in the business, Elliott's critical analysis charges.
That is one of the beefs behind Elliott's push for management change at Aronic Inc., the aluminum parts business that spun off from Alcoa last year. Elliott, which owns a 13.2 percent stake in Arconic, last month succeeded in pressuring Arconic CEO Klaus Kleinfeld to step down, and is trying to gain more representation on Arconic's board of directors. Last week, Arconic's board of directors issued a letter to shareholders urging them to resist what it called "Elliott's questionable tactics."
"Ford made Arconic share its innovations with Novelis," Elliott's report asserts. "Now Novelis is the No. 1 auto sheet supplier. Arconic did the work. Novelis got paid."
A Ford spokeswoman declined to discuss the dispute. Novelis and Elliott could not be reached for comment.
Alcoa 951 is a patented coating process that prevents corrosion and prepares an aluminum component to be bonded with adhesives and rivets. That allows automakers to design aluminum structural parts for vehicles such as the F-150.
That technological innovation is a linchpin in the auto industry's move toward greater use of aluminum.
Aluminum hoods, decklids and door panels became common in recent years as automakers tried to reduce vehicle weight. But to transform the body of the F-150 into aluminum, Ford needed a breakthrough for joining the parts.
While traditional steel bodies are built with simple welds, aluminum parts are tough to weld because oxides on the surface of the metal can hinder a strong bond. Alcoa 951, applied by spray or dipping, is unaffected by welding or stamping.
In 2013, Alcoa spokesman Kevin Lowery told Automotive Newsthat the company had agreed to share its technology "at the request of auto-makers," but did not name Ford. Lowery also confirmed that Alcoa had licensed its coating to Chemetall, a German supplier of chemical treatments for metals and plastics.
Alcoa did not give away its technology, notes Arconic spokeswoman Lori Lecker. Alcoa got paid for its licensing deal. But Elliott maintains that management allowed market share to slip away as a result.
Novelis said in 2013 that it was developing its own coating, but it acknowledged that it could use the Alcoa treatment. To date, Novelis has not publicly confirmed that it uses Alcoa 951.
The boardroom drama is playing out against escalating competition between the suppliers that dominate the North American automotive aluminum market, Arconic and Novelis.
Automotive aluminum sales in North America are booming. In the first quarter, Arconic's automotive aluminum sales jumped 43 percent from a year earlier, and the company expects sales in this segment of $1.3 billion, up sixfold from 2013.
For its part, Novelis expects to double its North American aluminum production in 2018, compared with 2014 levels.
Meanwhile, other competitors -- such as Aleris International Inc. of Ohio, Constellium of the Netherlands and UACJ Corp. of Japan -- are piling into North America's automotive market.
The companies are eyeing the auto industry's plans to reduce vehicle weight. By 2025, the average North American vehicle will use 500 pounds of aluminum, up from 423 pounds in 2014, according to research firm Ducker Worldwide.
During Arconic's quarterly earnings call with analysts, David Hess, who was named interim CEO upon Kleinfeld's exit, said that 95 percent of the company's sheet aluminum production through 2018 is covered by customer contracts.
"The global trend to lightweighting will continue," Hess said, "because it's a good deal for our end customers."