After retiring last month, Ed Johns sold his house and stored his stuff and was supposed to be traveling in Florida by now. Instead, he's parked at his sister's in chilly Detroit, his future as uncertain as that of the National Steel mill where he worked for 30 years.
National Steel is the target of an unexpected bidding war, with two rivals competing for it even as the company struggles through bankruptcy. That anyone would fight over an old-fashioned steel producer -- more than 30 of them have gone bankrupt in the past five years -- is a sure sign of a change in this troubled industry.
American steelmakers are in the midst of a turnaround as several overstaffed factories are finally seeking to consolidate into a more efficient few. The bad news for workers and retirees like Johns is that much of the rebound is riding on their shoulders. Buyers are interested in National and other steelmakers only if they shed their huge pension plans and retiree health benefits. The result could be a longer life for the old-line steel mills that seemed headed for extinction just a year ago -- but a harder life for thousands of workers and recent retirees who thought their decades of labor would provide permanent security.
Johns's pension is likely to shrink to about $500 a month from the almost $1,800 he was expecting. "You can't live on that," the 51-year-old electrician said. His health benefits could disappear completely.
While Johns is counting on his union for help, the fact is that the leader of the United Steelworkers of America, Leo W. Gerard, is a major force driving the consolidation trend. Gerard recognized that an unexpected confluence of government intervention and market forces have opened a brief window for rescuing Big Steel, and he's scrambling to seize the moment.
"I think there's a real opportunity to build a structure that could revitalize the steel industry by having . . . a humane consolidation," Gerard said. "The union has said for a lot of years now, the problem was not that there were too many steelworkers. The problem was, there were too many steel companies."
Many experts credit the Bush administration with setting the stage for the industry's turnaround by imposing 30 percent tariffs on some steel imports last year. While riddled with exceptions and set to wind down over a three-year period, the tariffs have helped increase prices for some forms of steel, said Peter Morici, a professor of international business at the University of Maryland.
"The tariffs gave [industry] some breathing space to pull this all together," he said.
America's traditional steel industry has been struggling for years against powerful competition on two fronts. First, overseas steelmakers are now huge. They use newer technology, pay their workers less than U.S. companies do and rely on government-provided health care and pension benefits. They can simply produce more steel at a lower cost than their American rivals.
Second, the old-line producers now are battling a new foe on their own turf. Independent operations known as minimills now account for more than half of U.S. steel output. The minimills, which use newer electric-furnace technology to produce steel from scrap metal instead of ore, have boosted quality over the years and turn out higher profits than the big mills. For the most part, the minimills also are nonunionized and have lower labor costs.
Operations such as National are called integrated because they handle every step of the steelmaking process in-house, from processing iron ore to making finished products such as high-grade sheet metal for automobiles. With their mounds of coal and hulking black blast furnaces, such mills helped produce the railroads, cars and war machines that made the 1900s the American century.
But they have seemed increasingly out of place in the Information Age, and have been clamoring for tariffs as a way to help them regain their footing.
Even after last spring's partial tariffs, steelmakers continued filing for bankruptcy protection. That knocked the next piece into place paving the way for change: the quasi-federal Pension Benefit Guaranty Corp. assumed control of employee pension plans.
Known as the PBGC, the agency insures guaranteed-benefit pensions the same way the FDIC backs up bank deposits. Employers pay premiums to support it, and the PBGC takes over when pensions don't have enough money to meet their obligations. Federal guidelines limit the agency's payments to retirees to levels sometimes far below those of privately run pension plans.
The collapse of the stock market the past few years has devastated pension plans throughout American industry. That especially hurts in a dwindling enterprise like steelmaking, where the number of retirees far exceeds the number of employees who now work and make pension contributions.
Late in 2001, a venerable name in American steel -- LTV Corp. -- shut itself down and about 7,500 workers lost their jobs. The PBGC took over LTV's pension fund. Gerard and the union immediately began looking for a buyer to restart the mill.
Last spring, just before the president was announcing the tariffs, Gerard hooked up with New York financier Wilbur L. Ross Jr., who agreed to buy LTV's assets but not its "legacy" costs -- the pension and retiree health benefits.
Ross formed the International Steel Group and hired back about 40 percent of LTV's workforce. In return, Gerard and the union struck a landmark labor agreement that allowed those legacy costs to fall away, as long as Ross started a trust fund that could provide an undefined amount of help to retirees in need of health care.
International Steel Group also slashed management at the former LTV, reducing seven layers of supervision to only three, and kept wages high -- up to $20.50 an hour, near tops in the industry.
Next, International Steel bought Acme Steel, and just this month the board of the bankrupt Bethlehem Steel voted to sell to Ross's group. Bethlehem, which has a major operation in Baltimore, also dissolved its retiree health and life insurance benefits.
Those deals and labor agreements smashed through the industry's torpor. Other companies shook themselves awake to realize that International Steel is poised to become the nation's biggest producer and a legitimate global competitor. If those companies could get favorable labor deals and eliminate legacy costs, they would find it attractive -- even imperative -- to start consolidating.
That's why U.S. Steel made a bid for National Steel last month, and then AK Steel topped that bid, and the two have been duking it out ever since. AK's last offer is highest, and a bankruptcy judge has given it priority status. But AK has a troubled labor history and will have a harder time reaching agreement with the union, an essential step for the purchase to go forward.
There are other factors that cloud the situation. Gerard and the steelworkers argue that neither U.S. Steel nor AK Steel is bankrupt and should not expect the same labor agreement that kick-started LTV. What's more, Gerard has become uneasy about appearing to cut his retirees loose.
"It's very distressing. We're not casual about this," he said. "If you work 33 or 34 years in a mill, and it's a hard job and a tough place, and you retire and plan ahead and all that, and you think your pension is sacred and you're going to have health care for life and all of a sudden your world has changed -- it's a very difficult thing for us. All we can do is deal with collective bargaining" for the best possible outcome for retirees, he said.
The PBGC has complicated any deal at National by moving to take over the pension on Dec. 6, while the company was still reorganizing and well before the bidding war started.
Under federal pension guidelines, workers who are eligible for early retirement would get far smaller payouts from the PBGC, and will not be able to collect severance payments the old union agreement called for in the event of a shutdown or sale.
That makes it harder and more expensive for a new owner to encourage early retirement as a cost-effective, union-approved way to trim the workforce.
Negotiations between the union and National's potential buyers started this month, and the union continues to work with the steelmaker on a plan for emerging from bankruptcy as a stand-alone company, with no new ownership.
Having so many options is a novel situation for beleaguered steelmakers: The industry could emerge streamlined and stronger. The union wields new power as it steers the consolidation deals. And while current workers will face layoffs, the ones who remain stand to be better paid and more secure than at any time in years.
But some observers are pessimistic. Even with consolidation, the integrated mills may just be prolonging their inevitable demise, said Robert W. Crandall, a senior fellow at the Brookings Institution.
"What we're observing in this consolidation is a way to manage down catastrophe in these bigger guys," Crandall said. He argues that the integrated mills cannot compete over the long haul with more efficient, more technologically advanced minimills. "These old integrated companies that use blast furnaces are essentially going through their death throes," he said.
The view is almost as stark in the dim light of the Auburn Cafe, across the street from National's Great Lakes mill outside Detroit. Next to murals of Greek ruins, under a TV tuned to CNBC, Ed Johns and fellow retiree Tom Holme find it hard to muster much enthusiasm for a possible steel turnaround.
Outside is Johns's new Dodge Ram truck, a silver turbo Diesel that cost him nearly $40,000 and that he planned to take on a long road trip to Florida and beyond. He's been preparing for five years, but now it's all on hold.
"You work for 30 years for something, you think with that amount of time you're secure in your future. But there are a lot of surprises in life," said Johns, whose father, brother, uncles and cousins all have worked in the mill.
Holme, who retired in 2001 after 36 years, at least has income from his wife's job at an auto auction. But the 58-year-old grandfather is worried about losing his health coverage, and about having to look for a job.
Still active in the union, Holme said he believes Gerard and the steelworkers will get themselves the best possible deal. But he doesn't expect to be part of it.
"Leo Gerard is doing anything he can to save what is there now in any integrated steel mill. But retirees fit on the priority list on a very low rung," Holme said. "My feeling is if it comes down to saving something and letting the retirees fend for themselves, that's what's gonna happen. . . . What he's fighting for now is survival."