The steel industry was beginning its long stumble when it turned to Washington for help in the late 1970s. The Carter administration responded by committing $300 million in loan guarantees to five struggling companies. Nearly a third of the funds went to help Wisconsin Steel, a Chicago outfit that had been around since the previous century.
Thanks to a strike at a key customer, Wisconsin Steel promptly went under. The company locked its gates one winter day without even bothering to notify its 3,000 employees that their wages were history. So was most of the government’s money.
Despite this fiasco, Jimmy Carter’s successors tried to deliver on demands for relief. In 1984, Ronald Reagan imposed import quotas to stem the tide of cheap foreign steel. In 1999, Bill Clinton guaranteed $1 billion in loans to beleaguered producers, and the following year imposed punitive tariffs on some imports.
It was never enough, particularly after the rise of low-cost minimills. By late 2001, their industry reeling, the steel makers wanted more from Washington: further protection from imports; pressure on other countries to reduce their steel-making capacity; and billions of taxpayer dollars to relieve the burden of their employees’ retirement costs.
They got a temporary tariff from President Bush, but not much more. And so the steel industry — what was left of it — shuddered and collapsed.
Bethlehem Steel, whose steel was used in the Hoover Dam, the Chrysler building and the George Washington Bridge, filed for bankruptcy in October 2001. It was followed by National Steel, Weirton Steel, Georgetown Steel and many others. The pain was great.
And necessary, some say. “If the steel companies had gotten all they wanted in terms of loan guarantees and import quotas, they would never have gotten better,” said Richard Fruehan, director of the Sloan Study on Competitiveness in the Steel Industry. “The bankruptcies forced their hand.”
Over the decades the companies had shed employees to stay afloat. Soon retirees greatly outnumbered the actual workers. At Bethlehem, the ratio was six retirees for every worker. All these retirees had good pensions and good health care plans, which they thought were guaranteed. But these costs were a tremendous weight on the companies.
Bankruptcy changed the rules, allowing the steel makers to unload billions of dollars in pension obligations onto the government’s Pension Benefit Guaranty Corporation and to cut more than 200,000 workers from their supposedly guaranteed medical care.
The failures also allowed for the renegotiation of labor contracts, something Wilbur L. Ross Jr., a specialist in distressed assets, realized when he began looking at the moribund industry. The only bidder for the bankrupt LTV Steel, he proceeded to buy Bethlehem and other old-line companies, putting them together as International Steel Group. He cut more employees and revamped work rules, taking Bethlehem, for example, from eight layers of management to three.
Steel’s turn-around was dramatic. The 17 leading companies went from a combined loss of $1.1 billion in 2003 to an after-tax profit of $6.6 billion in 2004, according to an analysis done for an industry trade group. Ross sold International Steel to the Indian entrepreneur Lakshmi Mittal for $4.5 billion in 2005, earning a tremendous return.
Thanks to all of steel’s tribulations and consolidations — and, no doubt, a world economy that was booming until recently — the industry is relatively healthy.
