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U.S.A.:Rouge Steel sold to Russians

Rouge Industries files bankruptcy; new owners allowed to renegotiate UAW contract

By Mike Hudson / The Detroit News

Rouge Steel at a glance
Headquarters: Dearborn
Annual steel output: 2.5 million tons
Major customers: Ford Motor Co., General Motors Corp. and DaimlerChrysler AG
Employees: 2,600; 2,000 unionized
Annual sales: $1.13 billion; 2002 loss, $52.3 million; 2001 loss, $111.5 million
History: Built in 1923, spun off from Ford in 1989

DEARBORN -- Rouge Industries Inc., the steelmaking giant of Ford Motor Co.'s historic Rouge industrial complex, was acquired Thursday by a Russian steelmaker after years of staggering financial losses.

Rouge Industries, founded 80 years ago by Henry Ford, filed for Chapter 11 bankruptcy protection Thursday as part of the sale agreement.

The buyer, OAO Severstal, Russia's second-largest steelmaker and a major auto supplier, plans to continue operating the plant but will sell off some assets and reduce operating costs.

While Severstal plans to continue operating the facility, the deal could mean layoffs and job cuts. Rouge Industries employs some 2,600 workers, including 2,000 hourly workers represented by the United Auto Workers and other unions.

"We view this as importing foreign investment instead of exporting American jobs," said Carl Valdiserri, chairman and CEO of Rouge Industries.

The sale marks a turning point for an operation that holds a strong place in Detroit's automaking history. The plant cranked out tons of steel as part of Henry Ford's vision of a one-site, raw-materials-to-finished-product auto production complex.

Rouge Industries' Chapter 11 filing allows Severstal to renegotiate the UAW labor contract with workers.

"The company and the UAW have agreed to meet to discuss a new labor agreement," Valdiserri said.

Known as a prepackaged bankruptcy, it also shields Severstal from Rouge Industries' debt and employee pension liabilities.

About 700 Rouge Industries workers are eligible to return to Ford, which owned Rouge until 1989.

"We have a number of employees with flowback rights and we will honor that obligation," said Anne Marie Gattari, labor spokeswoman for Ford.

Many of the Rouge workers are represented by UAW Local 600, the largest local in the union. Stanley King, president of Local 600's Rouge Steel unit, could not be reached for comment.

As part of the bankruptcy, Rouge Industries secured a $150 million debtor in possession payment -- capital that will allow the company to continue operating during the Chapter 11 process. Rouge said it will continue to supply Ford, General Motors Corp. and DaimlerChrysler AG without interruption.

Severstal is a leading automotive supplier in Russia with annual revenues in excess of $2 billion and annual steel production of 10.6 million tons.

"We are excited about the opportunity to acquire Rouge and join with its management and employees to continue to produce automotive quality steel," said Vadim Makhov, deputy general director for Severstal.

In 1989, Ford spun the unit off to focus on its car and truck assembly business and give the Rouge a fresh start.

But in an era of intense foreign competition, the plant began to lose millions each year. Rouge Industries was hobbled by unprecedented declines in steel prices, and sharp increases in natural gas prices have increased production costs.

Since 1999, Rouge has lost more than $360 million and is headed for a fifth consecutive year in the red.

While other companies like U.S. Steel Corp. have returned to profits after President Bush imposed stiff steel tariffs on imports, Rouge has lost money in four of the five quarters since the tariffs were imposed.

The companies said they will meet with the union to discuss the future of the plant, with potential cutbacks on the table. Under federal regulations, labor contracts are usually voided when a company files for bankruptcy protection.

"As part of our reorganization, we must put in place a cost structure that will enable us to become a profitable and competitive supplier," Valdiserri said.

The sale comes as Ford is spending $2 billion to covert the Rouge complex into a more efficient and environmentally friendly facility.

An industrial city in itself, the Rouge covered 1,300 acres with 23 miles of roadways, 100 miles of railroad tracks and more than a mile of docks facing storage bins capable of holding 2 million tons of raw materials.

The Rouge was the largest single manufacturing complex in the United States, with peak employment of about 120,000 during World War II.

The complex included dock facilities, blast furnaces, open-hearth steel mills, foundries, a rolling mill, metal stamping facilities, an engine plant, a glass manufacturing building, a tire plant, and its own power house supplying steam and electricity.

In December 1981, Rouge Steel Co. was formed as a wholly owned subsidiary of Ford Motor Co. In 1986, a $145 million continuous slab-casting plant was added to Rouge Steel operations.

In December 1989, Rouge Steel was sold to Marico Acquisition Co., a group of investors headed by Valdiserri. Rouge Industries went public on the New York Stock Exchange in 1994.

The remaining Rouge area now owned by Ford Motor Co. consists of about 600 acres on which remain the tool-and-die building, a frame plant, a stamping plant, an engine plant, a glass plant, an automotive assembly plant and a two-story office building.

The Ford Motor Co., in partnership with The Henry Ford, planned to operate a Rouge factory tour in 2004 after a lapse of more than 20 years.

My first car was a 67 Mustang Coupe, 2nd one was a 67 Cougar XR-7, 3rd one was a 66 Mustang Coupe. Why did I get rid of these cars for ? I know why, because I'm stupid, stupid, stupid.

My next Ford.....
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