Trash talk prior to price negotiations

Implications: This "announcement" is not about substitution, it is about upcoming contract negotiations with its steel suppliers, and an attempt to influence the agenda to offset the supplier power of the steel industry. Substitution is occuring, and will continue to occur (even towards steel and aluminium) but it is not fundamentally price-driven and is not a short-term development. Magnesium has potential and is growing in terms of penetration, but price and performance mean that it has a limited role.

Analysis: Right now, US HR coil prices are $530/ton, whereas GM is paying around $560/ton or slightly higher on a base price. US steel mills are consolidating with Arcelor-Mittal, US Steel (having just acquired Stelco of Canada) and AK Steel probably supplying at least 80% of automotive steel to the US and Canadian industry.
The automotive and steel industry sit down about now to agree on prices for 2008 contracts. Despite spot prices being below contract prices, US steel mills are likely to push their supplier power to push up contract prices again in 2008, and there is little GM can do about it. They cannot afford to buy more spot material given the specific grades and volume requirements.
They have therefore resorted to bluster and trash talk with the threat of substitution. Remember, the US auto industry buys around 15m tons of steel per year, so a $10/ton difference can add to the bottom line. Will it work - probably not - but this is not an explicit threat, it is trying to set the agenda.
Significant substitution cannot take place in the short-run or the medium-term. The tooling set-up, design knowledge and the dominant force of inertia of steel as the prime material for the automotive sector is difficult to replace. Materials such as magnesium have been making some penetration into the sector for some years, but the technical development is slow and its price advantage is not there - having said this, Ford has been much more active in adopting magnesium than GM.