US steel company going leaner, and meaner

NY TIMES NEWS SERVICE , NEW YORK
Sunday, Oct 23, 2005, Page 12

James Roberts, a 68-year-old retiree from the Bethlehem Steel plant in Steelton, Pennsylvania, is pictured outside the plant on Tuesday. Roberts lost his health care coverage and a third of his pension. PHOTO: NY TIMES SERVICE

James Roberts is understandably bitter about the restructuring of the US steel industry.

"It's hardly fair; hardly right," said Roberts, a 68-year-old retiree from the Bethlehem Steel plant in Steelton, Pennsylvania, who lost his health care coverage and a third of his pension as the company sunk into bankruptcy.

But for Jerry Ernest, a 54-year-old maintenance technician at the former Bethlehem plant in Sparrows Point, Maryland, the company's bankruptcy, reorganization and re-emergence this year as part of the global giant Mittal Steel was not quite as bad a deal. The money's better. So is the pension.

"I'm in my golden period," Ernest said. "I'm doing better at this mill than I've ever done."

What once Bethlehem Steel is more competitive now than it has been in a long while. Flailing under the onslaught of cheap foreign steel just four years ago, today it has consolidated into a larger company with a leaner work force and more pricing power.

To arrive at this stage, however, the work force at Bethlehem's plants was trimmed to some 8,200, down from 11,500 three years ago. More importantly, Bethlehem had to cast off many of its roughly 70,000 retirees.

In doing so, it abandoned the part of industrial America's social contract that implied that if workers gave the company decades of hot and dirty factory work, in return, the company would provide generously for them in old age.

"It doesn't help anybody to have a gold-plated contract in a failing company," said Wilbur Ross Jr., the financier who bought Bethlehem Steel in 2003, strung it together with four other bankrupt mills, restructured their operations and sold them to Mittal this year.

"Steel is a cyclical industry, so you need a cost structure with which you can survive in periods of low demand," Ross said. "I believe we have achieved that."

Today, other industrial behemoths like General Motors and Delphi, the giant auto parts supplier that just filed for bankruptcy, are similarly flailing as they take aim at the "legacy costs" of retiree health care and pensions. The gyrations of the steel industry provide a roadmap of how they might reconfigure their industrial relations.

The revamping of Delphi in bankruptcy "will put the unions in the difficult position of perhaps having to make trade-offs between maximizing the pay and benefits of active workers versus maximizing the chances for saving these pension plans," Robert Miller Jr., Delphi's new chief executive, said in a meeting with reporters and editors at the New York Times.

Miller from experience. In 2001, he was the chief executive who led Bethlehem Steel into bankruptcy.

Just years ago, most of the US' integrated steel mills had either gone bust or were on their way there. On the losing end of a long battle against cheaper steel made by foreign producers and the low-cost domestic "mini-mills," the giant steel mills around the Great Lakes began shedding large numbers of workers in the 1970s.

Under pressure, the industry transformed itself. In 1980 steel companies employed about 400,000 US workers and it took about nine man-hours to produce a ton of steel; by last year, the work force had withered to some 120,000 workers but it took each of them only about two hours to make a ton of steel.

The surge in productivity also had a cost, however. Early retirement was always the favored tool to ease workers out of the payroll. As layoffs continued from one decade to the next, the number of retirees mushroomed. By the end of the 1990s there were about three retirees -- drawing pension and health benefits -- for each active worker, nearly triple the ratio for other major basic manufacturing companies.

Then, the steel industry received a double whammy. Another flood of foreign steel ate deeply into the market share of domestic producers and steel prices plunged as demand for the material in Asia and other developing economies plummeted after the string of financial crises that coursed through the Far East.

Bethlehem among more than 40 steel companies that sank into bankruptcy between 1997 and last year. Many made it out, mostly restructured and consolidated into one of three mega-companies: Mittal, Nucor and US Steel.

While were complex, and involved different combinations of concessions from their workers, two key components stood out: shedding retiree medical benefits and unloading the retirement plans onto the government's Pension Benefit Guaranty Corp.

Two failing steel companies moved the pension plans for a quarter of a million workers and retirees to the PBGC from 2001 to 2003, dropping into the government's lap a long-term payment gap of about US$10 billion. The United Steelworkers of America estimated that 208,000 retirees and dependents lost their health care benefits. Bethlehem accounted for nearly half.

What the restructuring of labor costs do to labor relations at the US' big concerns? As the dust lifts on steel's reorganization, the remaining work force, while radically smaller, does not seem to be in such a bad position. The International Steel Group, the new company into which Ross folded his steel acquisitions, reached an agreement with the steelworkers union that its workers hail as an improvement over the old.