Big Steel's Winter of Woes

By Christopher Byron

A strike threat has the companies groping for a wage deal by spring

Like mausoleums of a passing age, they stand shuttered and empty. They are the padlocked steel mills of what has come to be known grimly as the American Rust Bowl, and from the rail sidings of East Chicago to the icy waterways of western New York State, they offer mute testimony to the industrial damage that has been done by the longest economic decline in half a century.

Though signs are beginning to mount that the 18-month-old slump is at last starting to draw to a close, no sector of the economy can yet be sure of a sustained recovery; in the case of steel, the outlook is bleakest of all. More than almost any other part of Smokestack America, steelmaking finds itself struggling to survive not just the current downturn but a whole host of other, longer-lasting problems. These range from the lofty, uncompetitive wages of the unionized employees, to the antiquated state of many of the mills and fabricating plants, to the relentless pressure of foreign competitors who are themselves burdened with bulging capacity and weak domestic markets.

With unemployment hovering at 50% of the industry's 450,000-strong labor force, and industrywide production sputtering along at a mere 29% of capacity, the plight of the nation's steelmakers is truly ghastly. During 1982, losses for the industry as a whole reached a record $2.5 billion, and though no major steel producer currently faces imminent bankruptcy, some analysts give the weakest of them, including such venerable giants as National Steel (1981 sales: $4.0 billion), and Republic Steel (1981 sales: $4.3 billion) as few as six to eight calendar quarters before they run out of money.

For 1983 the sales outlook is cloudy at best. Though the U.S. Commerce Department forecasts a 25% rise in shipments during the year, to 80 million tons, that is still less than 75% of current capacity and little more than half the peak production of 150.8 million tons in 1973. More worrisome still, signs are emerging that the beleaguered and struggling industry could succumb to labor strife and perhaps even a crippling midsummer strike by the United Steelworkers of America, when the union's current three-year contract expires in August.

Such a nationwide walkout would be the first by the U.S.W. in 24 years and would come just as economic recovery is expected to begin boosting steel orders from such big-ticket industry customers as automakers and capital-goods manufacturers. Roger Smith, chairman of General Motors, which alone buys 7% of the steel industry's output, has already warned Lloyd McBride, president of the United Steelworkers of America, that unless wage talks between the companies and the U.S.W. are settled by March, GM will not hesitate to turn to Japanese and European suppliers for its steel. Other big users of steel would doubtless choose the same route to ensure supplies, in the process cutting off the steel companies from the orders they so desperately need but cannot fill.

Steel's current labor tensions date back to last spring. It was then that a bargaining group of eight leading producers, headed by U.S. Steel, first began trying to get the industry's sky-high employment costs under control. Because of excessively generous wage settlements throughout the 1970s, steelworker employment costs by the end of last year were more than $26 per hour per worker, the highest of any industrial sector of the economy.

In an effort to pare costs, the companies sought unsuccessfully, first in July and then again in November, to persuade the U.S.W. to tear up its existing work contract and accept a new three-year deal at reduced wages and benefits. The two proposed packages were hammered out in preliminary talks with McBride and representatives of the union's 173-member International Wage Policy Committee, but both foundered on the objections of local U.S.W. chiefs who refused to go along with their leaders. They found the deals, which involved a multiyear pay freeze in July and a temporary pay cut averaging 11% in November, simply too harsh to be accepted.

U.S.W. members also feared that any savings resulting from the so-called givebacks would have been used by the companies to diversify out of steelmaking altogether. The local chiefs, who overwhelmingly refused to ratify either of the two deals, warned for example that the companies would simply invest the money in such nonsteel fields as banking, consumer goods and natural resources, all of which have already attracted investment by various steelmaking firms.

Struggling to block yet a third rejection of a wage-concessions package, McBride last week held closed-door talks with company representatives in an effort to come up with a package of givebacks that his union members could accept. In a formal 31-page statement, the U.S.W. leader spelled out their view: "We must guard against the possibility that the relief we negotiate may not serve its intended purpose of job preservation. One measure to ensure that it does is an enforceable commitment by the companies that they will not permanently shut down any plant during the duration of the agreement. Further guarantees are also necessary that the companies invest the resulting savings in plants and facilities where our members work, and not divert to other corporate ventures."

Meanwhile, the U.S.W's Wage Policy Committee, which generally supports the giveback approach, was also maneuvering to head off the chances of a strike. Meeting in Pittsburgh last week, the group revised the union's contract-ratification procedures in a way that chops almost in half the number of U.S.W. local presidents permitted to vote on new contracts. The move is meant to encourage a concessionary new contract by indirectly limiting voting to members likely to support givebacks.

Whatever the outcome of the wage negotiations, steelmen face equally formidable long-term problems. While foreign producers have shifted over increasingly to highly efficient "continuous casting" techniques for steelmaking, U.S. firms still rely heavily on much more costly and labor-intensive processes. Though U.S. companies had been planning to spend upwards of $7 billion during 1982 on new investment to upgrade their plants, plunging sales have so severely crimped their cash that most new capital-expenditure plans have now either been put on hold or abandoned entirely.

Meantime, low-cost foreign-made steel has kept flooding into the U.S. market, eroding sales for U.S. producers and further tightening the industry's cash squeeze. Last autumn U.S. steelmakers won concessions from European producers, who agreed to limit exports to the U.S. to about 5.5% through 1985. But analysts warn that a slowdown in European exports is more than likely to be offset by rising imports from market-hungry producers elsewhere.

Protectionist trade barriers are clearly no answer to the industry's woes. But as the vital signs of a recovering economy at long last begin to work their way through business in the months ahead, steelmen need at all costs to avoid the sort of calamitous strike that would knock their companies flat as well as send imports leaping. Only after the industry has struggled back to profitability can it have any hope of solving its deeply rooted long-range problems. For now, at least, the challenge facing Big Steel is measured in months, not years.

--By Christopher Byron.

Reported by David Beckwith/Washington and Bruce van Voorst/New York

With reporting by David Beckwith/Washington, Bruce van Voorst/New York This file is automatically generated by a robot program, so viewer discretion is required.