Some of them went to work in the blast furnaces when they were just 18, then spent half a lifetime handling molten slag and inhaling steel dust in some of the most dangerous jobs on earth. But for the tens of thousands of Bethlehem Steel Corp. Only a shadow of its former self, Bethlehem Steel announced Friday that it was seeking Bankruptcy Court approval to terminate health and life insurance benefits for 95, retired workers and their dependents March Both pieces of bad news were expected.
The American steel industry has been in decline for decades, and most of its former giants have been trimming pensions and benefits for retirees for years. Moreover, corporate America largely has shifted the responsibility of old-age provisioning to workers, with self-funded plans such as k accounts. But the one-two punch still is a staggering blow for a generation that had been promised a lifetime of comforts in return for a career spent at one company.
Nearly all retirees will continue to enjoy some benefits. Pension payments, which are being taken over by the Pension Benefit Guaranty Corp. For this article, this writer browsed through the last 50 years of Bethlehem's annual reports and for a long spell searched in vain for ROE statistics or even an acknowledgment that Bethlehem knew what ROE was.
Finally, in the report, Stewart Cort, a sales and marketing type who succeeded Martin as CEO, spoke in his chairman's letter of a "difficult" year and said, "Our net income was far from satisfactory, representing a return of only 7. The fact is that for 16 years, beginning in , Bethlehem never came close to the 's ROE, which for those years averaged Bethlehem consistently did no better than a single-digit return and sank down to 4.
Overall, its ROE averaged a mere 7. That's a huge inferiority, signaling a company that was in deep trouble. Grown-up businesses generating ROEs like that are the kind that investors want to run from, as fast as possible. That point is made in a story often told by Jack Welch, who in his General Electric career got a call from a Pan Am executive asking whether GE might be interested in buying Pan Am's hotel subsidiary, Intercontinental.
Welch, who knew bad from good when he saw it, said, "You're selling the wrong business. You should be selling the airline. Confronted with what was happening to its business those many years ago, Bethlehem should have been tirelessly trying to unload its steel plants on some buyer.
But of course that wasn't going to happen, wasn't even going to be thought about, probably couldn't have been carried out if it was thought about. Unable to cope with that calamity in any way, Bethlehem's bosses just dug their hole deeper, all the while contending with a set of impossible economics. The single piece of good news for the company as it burrowed was a gain in productivity--that is, reductions in the man-hours required to make a ton of steel.
But this progress was impeded by both anachronistic work rules that the United Steelworkers of America defended tenaciously and capital expenditure needs that exceeded what Bethlehem could afford. Meanwhile the company's per-head employment costs rose irrepressibly, not only because of the steelworkers' tough demands but also because Bethlehem regularly extended whatever benefits labor won to its white-collar battalions. The last huge burden for both company and industry was extreme softness in prices because of the new competition.
Right now, steel prices are very strong; had they moved up earlier, Bethlehem's life might have been prolonged, but not likely saved. Foreign steel, of course, enraged Bethlehem and the integrated industry, which believed it to be unfairly priced.
The mini-mills initially bothered the industry much less, because it saw the new ventures as little more than annoying gnats, buzzing around making inconsequential niche products like reinforcing bars.
But these producers then moved up the food chain, first beginning to make plate and then structural products. That hit Bethlehem where it literally lived--in Bethlehem, Pa. This plant, which was for years sentimentally kept on life support, was finally and mournfully closed in A few statistics show the brutality of steel's overall economics.
And steel wages? Knowing these disparities might make Schwab and Grace turn over in their graves, though Grace did get an early taste of union power. He was forced in to let the steelworkers union into the company. Thereafter, Bethlehem, typically joining in industrywide bargaining, grimly settled into triennial negotiations in which the union worked unbendingly at keeping the maximum number of its members employed at the highest possible pay.
That vault in wages shows how well the union succeeded. Worse--this is an industry in which that word is persistently relevant--the industry let itself be locked into work rules and narrow job descriptions that protected workers whom automation and efficiency should have made superfluous. The point is driven home stunningly by the contract changes that International Steel Group wrung from the steelworkers for those six Bethlehem plants it began operating in ISG's CEO, Wilbur Ross, who characterizes Bethlehem's contract as "terrible," got the union to allow the cutting of job categories in his plants from 32 to five!
As just one example, there is no longer a job category called electrician, which means that when a light bulb needs changing, a machine operator doesn't have to call such a specialist in perhaps from the far reaches of a plant but can screw in a new bulb himself. The ultimate error was the steel industry's approach to pension and health benefits. The history here is revealing. From World War II on, wage and price controls intermittently slowed wage increases.
Written into the contracts as offsets, though, were a long string of benefit improvements. These took up their role as company killers.
Management, however, originally viewed its benefit promises as benign compared to wage increases calling for immediate cash. Health costs were modest for many decades and, besides, were normally pay-as-you-go. That is, few companies during this era bothered to fund health benefits in advance by putting money into a trust for employees. Until the s, when new accounting rules came in, pay-as-you-go also meant that companies were not accruing expenses for what they would eventually have to pay retirees.
Corporations were thus left oblivious to true costs and real earnings. Pension plans, in contrast to health and insurance plans, were normally funded and eventually had to be. But before that requirement took hold, companies had wide latitude as to how much, if anything, they would contribute in any given year. Consequently, a lot of the pain related to pensions could be pushed into the future if that's the way management wanted it. David Roderick, 79, who ran U.
Steel in the s, says in fact that differences in pension strategy between his company and Bethlehem significantly contributed to the fact that U. Steel survived "We were never even remotely threatened with bankruptcy" and Bethlehem didn't.
Steel's strategy decades ago was to aggressively make contributions to its pension fund, book these as the deductible expenses they were, and exit with a reduced tax bill.
Bethlehem took the approach that its cash could better be used for modernization of its plants. Bethlehem, Roderick says, even used the difference between its strategy and U. Steel's as a selling point, telling its customers that Bethlehem was investing to improve its products whereas Big Steel wasn't. There even came a glorious time, in late and much of , when demand for steel surged, ROE leaped upward, and the investments looked very wise.
But that was one of steel's false springs, the greenest of several that came along and briefly, if fraudulently, lifted the hopes of all. By the industry was again flattened, and was in fact moving into a new and prolonged era of closing plants. Lewis Foy, Bethlehem's CEO in the late s, described the company's past capital expenditures, heavy though these were, as "far short of our requirements. Bethlehem couldn't just ignore this weakness either: It had to build up the pension plan and, leaving aside any outside capital it could bring in, finance this repair work with money it was currently generating.
What Bethlehem had here was simply a demographic nightmare, in which an ever-shrinking number of active employees were charged with making profits sufficient to support the present and future of an ever-growing number of retirees and dependents.
Bethelehem's tumbling employment numbers tell the story: Head count peaked at , in and by the mids was down, gulpingly, to 35, And at that point though this certainly wasn't the end of it Bethlehem had 70, retirees and dependents! The company was meanwhile feeling the great rise in medical costs that walloped the s.
And for its medical promises to retirees, Bethlehem had no funding at all. During this time, employees were demanding higher wages, better benefits and were going on strike to make sure this was accomplished.
This turmoil in the company gave foreign industry a chance to pull ahead. Bethlehem Steel also faced competition closer to home. With the advent of newer forms of manufacturing, Bethlehem Steel was pushed out of the spotlight. The mini-mill guided steel production in a direction formerly thought to be impossible. With new technologies beginning to arise, the corporation suffered and was forced to conduct massive layoffs throughout all of the plants.
Due to technological advances, foreign competition, failed market strategies and union demands, Bethlehem Steel was forced to cease production on November 18, Those who grew up with Bethlehem Steel never imagined the successful corporation would fall. I thought Bethlehem was a giant and steel was king. Is this how people who worked for Bethlehem Steel envisioned it would end? All that remained of the historic corporation were memories. The museum will highlight the impact of the Bethlehem Steel Corporation on not only Bethlehem, but also the rest of the United States.
Along with the museum, an entertainment complex is being built at the site. The new Sands Casino complex has turned part of the plant into a slot casino, restaurants, shopping venues, and other forms of entertainment. Bethlehem Steel has indelibly left its mark on United States history.
The corporation broke records and christened new technologies in American Industrial history, while employing generations of families and supporting the United States in both World Wars. Without Bethlehem Steel, the New York skyline would be unrecognizable, the Allies would have gone into war unarmed, and the first strides in steel manufacturing would not have been taken.
The Bethlehem Steel Corporation was a king in the world of steel manufacturing and its legacy lives on in the city of Bethlehem, the state of Pennsylvania, and the rest of the country. Skip to main content.
0コメント