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Chapter 16 Disengagement In 1986 conditions aligned to create the perfect storm. Foreign trade, labor unrest, industrial retrenchment, transport costs, and consumer demands all managed to converge at once, and U.S. Steel was at the center of the resulting economic deluge. Ironically, while U.S. Steel felt the brunt of this economic perfect storm, the company had played a major role in seeding the storm. It used a struggling economy as a convenient way to make one last thrust to rid the company of all that its executives considered irrelevant, unnecessary, and generally burdensome. U.S. Steel’s perfect storm was actually a perfect opportunity for the company to sustain short-term financial loss while at the same time putting all the final pieces in place to complete its restructuring plan and assure a quick return to economic prosperity. Storm clouds gathered almost as soon as the new year began. When leaders of the United Steelworkers of America met in mid-January 1986 to discuss strategy for upcoming contract negotiations, their collective position was to call workers off the job before yielding to steelmakers on any pay or benefit concessions. Holding that line would not be easy, though. And even USWA president Lynn R. Williams conceded that he and other union executives would be more understanding toward steelmakers who could make a reasonable case for just how severe their financial condition might be. Both the USWA and the steelmakers found themselves in a peculiar position in 1986. For the first time since 1956, the union would be negotiating contracts with individual steel companies and not with a single representative of all the companies. Thus, separate deals would be struck between the USWA and each of the “Big Six” steel companies: U.S. Steel, Bethlehem Steel, LTV Steel, National Steel, Inland, and Armco. All six companies employed a combined 125,000 (or roughly 20 percent) of the 700,000 USWA members nationwide. Labor costs were certain to be an issue at each negotiation site. Such costs represented about one-third of a steelmaker’s operating costs. So working either to cut labor costs or at the very least to hold them in check would be the management objective. The USWA, on the other hand, had a pay increase and improved benefits 196 Disengagement in its sight. Backing that up was the reminder that a 116-day strike had driven home the point in 1959 and that a similar strike might do the same in 1986. The USWA leadership nonetheless was aware of how much conditions in the steel industry had changed since 1959. The union in 1986 was in a position to push steelmakers only so far with its demands. To better ascertain its bargaining position, the USWA commissioned a study of the steel industry’s financial status. The study presented some sobering conclusions, showing for instance that in eight years America’s steel consumption had declined by nearly 19 percent. On the other hand, the study showed that steelmakers had made significant savings in recent years by cutting labor-related expenses. The bottom line seemed clear: the USWA was perfectly aware of how the steel industry had been declining, but if the industry intended to survive at all, then steelworkers , whose numbers also were in decline, should receive a decent wage.1 Any leveraging argument that the USWA hoped to propose suffered a major blow when U.S. Steel’s second quarter 1986 earnings figures were released. The news could have been worse but not much worse. U.S. Steel income for the period was $14 million as compared to $180 million in second quarter earnings the previous year. Second quarter sales also had declined from $5.44 billion in 1985 to $4.17 billion in 1986. The steel sector accounted for the company’s biggest financial hit, sustaining a second quarter operating income loss of $42 million as compared to an operating income of $85 million in 1985. But income from oil and gas dropped precipitously as well. Marathon Oil, for example, generated a 1986 second quarter income of $163 million as compared to $322 million for the same period in 1985.2 The bad news reflecting from the second quarter figures did not improve by year’s end. As it happened, U.S. Steel reported a net income loss of $1.83 billion for 1986. The steel sector accounted for the most significant portion of that loss: $1.37 billion. But while U.S. Steel’s oil...

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