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The Washington Post
February 16, 2005
Steel Prices Hurt Auto-Parts Business; Industry Study Warns Of Job Losses
By Greg Schneider, Washington Post Staff Writer
High steel prices are causing job cuts and bankruptcies in the U.S. auto-supply industry,
according to a study the Motor and Equipment Manufacturers Association will release today. The
study shows two industries heading in opposite directions, with steel producers earning their best
profits in years while auto suppliers — giants such as Delphi Corp. and Visteon Corp. and small
family-run shops alike — sinking beneath the higher cost of raw materials, health care and
pensions. Some experts say the U.S. auto-supply industry could shrink by as much as half over
the next five years because of cost pressures, the study says. "We are struggling with steel prices,
and our suppliers are being squeezed as well," said John Anderson, spokesman for Delphi, which
is the largest maker of components for automobiles. The suppliers association wants the
government to end duties on some types of imported steel to encourage lower prices. The Bush
administration canceled stiff steel tariffs in December 2003, but that didn't result in an expected
drop in steel prices. High demand and high raw-material costs allowed U.S. steel producers to
keep prices high. Last month, hot-rolled steel sold for $695 a ton on the U.S. spot market, while it
averaged $575 a ton worldwide, according to the manufacturers' study. The prices of some types
of steel have risen more than 50 percent since the tariffs were lifted, the study says.
Manufacturers generally have been unable to pass higher steel prices on to automakers, who insist
on long-term contracts; partly as a result, Delphi cut about 6,000 U.S. jobs last year and plans to
cut 5,000 more in 2005 to help reduce costs.
Some price increases are beginning to trickle through to consumers. Last month Honda Motor Co.
announced plans to increase vehicle prices by a few hundred dollars each because of higher steel
prices. Steel producers argue that they're being unfairly blamed when other costs — such as health
care, litigation and currency exchange rates — are far more harmful to the auto-supply industry.
"The moment the steel industry got very favorable momentum in terms of market demand and
pricing, there was a hue and cry. It strikes me that steel is a convenient whipping boy because it's
a necessary automotive material, but the price of steel is not the cause of their problems," said
Nancy Gravatt, spokeswoman for the American Iron and Steel Institute. The U.S. steel industry
has consolidated in the past few years, with nearly extinct mills finding new life as part of bigger
companies. New labor agreements helped steelmakers shed health care costs for retirees, the
government took over retiree pension plans and the tariff program helped the industry avoid
cheap foreign competition as it reconfigured. Though the tariffs were lifted, some types of steel
are still covered by anti-dumping protections that the auto-parts makers say should be
reconsidered. The auto suppliers' study, conducted by economists from Precision Economics LLC
and the American Enterprise Institute, points out that the auto industry has not undergone a
similar government-aided restructuring. And because auto-parts suppliers employ about 700,000
people, compared with about 100,000 employed in the steel industry, the stakes are even higher,
the study says.
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