Sharp increases in steel prices — up as much as $500 per vehicle since January — have left automakers and suppliers reeling.

Tensions are rising as steel makers tear up contracts and demand immediate price increases. Steel and automotive executives say that ArcelorMittal — the world's largest steel maker — and other steel mills notified the Detroit 3 last month that they will impose surcharges as high as $250 a ton.

That would amount to a price increase of 20 to 40 percent over most contractual prices. "I've never seen anything quite like it in my career," says Dana Holding Corp. Chairman John Devine, a former CFO at Ford Motor Co. and General Motors.

The benchmark for automotive steel prices is hot-rolled carbon sheet steel, which is used to make bumpers, wheels and frames. In the fourth quarter of 2007, the spot-market price was $535 a ton. Today, the spot price — which is somewhat higher than contract prices — has almost doubled to $1,035.

Steel prices are up roughly $500 per vehicle since January, says analyst John Hoffecker of AlixPartners LLC. According to the American Iron and Steel Institute, the average car contained 2,400 pounds of steel last year, while the average pickup or SUV contained nearly 3,000 pounds.

To cover the rising cost of raw materials, some suppliers are demanding price increases from the automakers. ArvinMeritor CEO Chip McClure has announced plans to pass higher steel prices along to his customers as a surcharge starting June 1.

Can McClure make his price increase stick? An ArvinMeritor spokeswoman said only, "We are having those discussions."

Asked whether Dana would follow ArvinMeritor's example and raise prices, Devine said he has no choice.

"The size of the steel increase is so unprecedented that we have to go after "pricing relief — and we are."

Global Inflation

Steel is part of a wider trend of rising raw material costs. The price of platinum — used in catalytic converters — is up more than 70 percent. Aluminum prices have jumped to $2,750 a ton, up $500 over the past year or so.

"The automakers are between a rock and a hard place," says Pete Peterson, a steel industry consultant and former director of automotive marketing with U.S. Steel Corp.

Steel makers are raising prices because their own raw materials have grown more expensive, Peterson says. Big mining companies around the world have raised spot prices for coal, iron ore, manganese and other key steel-making ingredients.

Strong global steel demand is contributing to the price surge. So is a lack of competition from foreign producers, who are disinclined to export to the United States because of the weak dollar.

Overseas carmakers are not immune. Herbert Diess, BMW AG's purchasing chief, is proposing a cost-sharing approach to ease the burden of higher steel prices.

In Japan, Toyota Motor Corp. accepted price increases last month of more than 35 percent for steel sheet used on exterior panels, according to the trade publication Steel Business Briefing.

And on May 29, Honda Motor Co. CEO Takeo Fukui confirmed that a U.S. steel maker had demanded a substantial price increase. He declined to identify the company but said the auto industry as a whole is in a bind.

"We are in a weak position," he told reporters in Tokyo last week.

Add 20 Percent?

In North America, steel contract prices are a closely guarded secret. But steel makers appear ready to demand increases of 20 percent or more, says one steel industry insider.

Even GM — which traditionally has played steel suppliers against each other — appears vulnerable. GM used to negotiate with nine steel makers. Now it bargains with just four major integrated steel mills.

The stakes are especially high for GM because it buys steel for its suppliers, too. The carmaker resells to suppliers much of its annual purchase of 7 million tons. Half of GM's North American suppliers who use steel participate in the resale program.

GM insists that it won't accept surcharges. "We expect suppliers to honor their contracts," says GM spokeswoman Deborah Silverman.

Ford Motor and Chrysler LLC declined to discuss their steel purchases.

What if automakers refuse to pay the surcharge?

Steel makers are talking tough. "We will not be in a position to assure continuity of supply," says one steel industry insider. "Why should I sell to GM at a lower pri