Raw materials costs are a headache for automakers worldwide, but the skyrocketing price of precious metals could escalate that headache to a migraine.

The chief culprit is platinum, the preferred catalyst in automobile catalytic converters. According to Reuters, platinum futures hit $1,340 an ounce late last week, and the net impact for automakers is in the range of $100 to $200 per car - yet another hit to already razor-thin profit margins.

Although automakers hedge against materials costs, as they do against currency fluctuations, if the price of a commodity stays high for a prolonged period, the company's costs will inevitably rise.

Cheaper palladium (at a relatively modest $395.50 an ounce last Friday) is an alternative to platinum, but there are technical issues. Not only is palladium somewhat less "active" than platinum as a catalyst, it is also much more sensitive to "sulfur poisoning" (reaction of the catalyst with sulfur, limiting its effectiveness in the emissions control system), a serious problem for diesel emissions systems.

In Europe, where over half of all cars sold are diesels, this is a significant problem and diesel catalytic converters have been exclusively platinum for this reason. Only the advent of ultra low sulfur fuels has made the use of palladium feasible, and even so, the newest diesel catalysts only substitute palladium for part of the platinum catalyst.

[Sources: Reuters, Dieselnet.com]