In-situ formed Al-AlN sintered composite materials have been developed by the direct nitriding process based on the reaction of the aluminum matrix to nitrogen gas during sintering. A traditional press-sinter(P/S) method, hot extrusion(H/E) and powder forging (P/F) processes are available to consolidate the composite aluminum alloys. Fine AlN particles less than 1 μm in diameter dispersed as hard particles in the material have a significantly strong bonding to the matrix. They have an important role to improve wear resistance equivalent to the hard anodizing or Ni-P plating. The aluminum alloy also shows a low friction coefficient (less than 0.01) under oil lubricating conditions because fine AlN particles make it possible to form oil film at the interface between the counterpart material. The Al-AlN composite material shows an outstanding performance in the application to the automotive components, in particular Automatic Transmission (AT) parts such as valve spools and oil-pump rotors. The material without surface treatments has a high potential to be used in various applications in automotive where good wear resistance and a low friction coefficient are required under oil lubricating conditions.