Rouge Steel Company

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Rouge Steel Company

3001 Miller Road
P.O. Box 1699
Dearborn, Michigan 48121-1699
U.S.A.
(313) 323-9001
Fax: (313) 323-2270

Private Company
Incorporated: 1989
Employees: 3,200
Sales: $1.13 billion (1989)
SICs: 3312 Blast Furnaces & Steel Mills; 3316 Cold-Finishing of Steel Shapes

The Rouge Steel Company began as an integral part of Henry Ford’s sprawling River Rouge automobile plant, built during the 1920s. The steelmaker remained a lucrative division of Ford until the early 1980s, when it lost profitability due to economic recession and a troubled U.S. auto market. In 1982 Ford Motor Company converted its steel division to form a wholly owned subsidiary. Sold to Marico Acquisition Corporation in 1989, Rouge Steel is currently the eighth-largest steelmaker in the United States, commanding five percent of the flat rolled domestic steel market with a steelmaking capacity of 3.2 million tons.

Rouge Steel grew out of Henry Ford’s vision of an industrial facility that would bring together the various elements of his automobile production process. Envisioning a manufacturing plant that would transform raw materials into completely finished products, he developed the world’s first vertically integrated factory complex.

In 1915 Ford stood on the Rouge’s future site and declared it the perfect site to integrate iron-making facilities with his moving assembly line: “It’s right here where we stand. Up in northern Michigan and Minnesota are great iron ore deposits. Down in Kentucky and West Virginia are huge deposits of soft coal. Here we stand, half way between, with water transportation to our door. You will look the whole country over but you won’t find a place that compares with this.” Ford began to acquire coal mines, and a battery of coking ovens were installed on the Rouge site. Coal was shipped into the Rouge by means of the Rouge River as well as by rail. The first of the Rouge’s giant furnaces—the largest of its kind in the world at that time—was finished in May 1920. Blast furnace “A” was blown in on its inaugural run when Ford’s grandson, two-and-a-half-year-old Henry II, struck a match to ignite the furnace’s coke charge. “B” blast furnace was added in 1922.

Steel was first made at the Rouge in 1923 with an electric furnace, and plans were made for furnaces with much greater production capacities. Ford, working with technical experts from the Morgan Construction Company of Worcester, Massachusetts, began developing large open hearth furnaces as well as blooming mills, rolling mills, and other steel-finishing equipment. Ford placed the development of the Rouge’s steel facilities in the charge of John Findlater, who developed them in cooperation with Philip Haglund and Harry Hanson. Two years later, the Rouge’s steel-making facilities were operational and the first“heat,” or batch, of steel was poured on June 21, 1926. In that year the Rouge produced 321,476 tons of ingot steel, and output was doubled within three years. By 1929 the manufacturing complex covered almost 1,200 acres of land, 350 of which were taken up by the Rouge’s steel-making facilities.

The Ford Steel Division continued to expand the Rouge’s steelmaking capacity, adding a third blast furnace—furnace “C”—in 1948. Though steel-making technologies remained virtually unchanged, new furnaces and mills were added to Rouge’s steel finishing operations during the 1960s. A move was made toward the consistent expansion of Rouge’s use of scrap steel. In 1964 two basic oxygen furnaces were installed, making use of seventy-five percent “hot metal” from the blast furnaces and twenty-five percent scrap.

In 1976 two electric arc furnaces (EAFs) were added to Rouge’s operations, capable of producing 850,000 tons of steel per year. The EAF facility, unlike the older blast furnace and basic oxygen furnace combinations, worked in a one-stage process that used only high-grade scrap steel. The EAF operation allowed Rouge a high level of flexibility and prepared the company for sudden increases in demand. The new equipment also allowed the company to maintain production during the periodically necessary process of re-lining the blast furnaces.

Rouge Steel moved into the 1970s with state-of-the-art equipment and, as a result, a vastly increased steel-making capacity. The company’s outlook was bright: its principal customer, Ford Motor, was doing exceptionally well in the early years of the decade. However, a series of poor decisions by Ford management (including Henry Ford II’s decision to cancel the development of a sub-compact model to replace the disastrous Pinto model) and an increasingly competitive U.S. auto market brought about a period of change in Rouge Steel’s operations.

Compact cars became increasingly popular during the fuel crunch of the late 1970s, and a surge in small imports from Japan intensified competition for car buyers. The combined effects of Rouge Steel’s increased steel capacity, import competition, and Ford’s shift to smaller vehicles put Rouge’s operation in the red.

In an effort to increase profitability, Ford gave Rouge Steel the unprecedented task of selling fifty percent of its production on the open market. Rouge had previously sold over eighty-five percent of its steel to Ford, and subsequently had little experience in more competitive markets. On January 1, 1982, chairman of Ford Motor Philip Caldwell announced Ford’s conversion of its Ford Steel Division to the Rouge Steel Company. “The new subsidiary will provide additional operating and financial flexibility for future growth of steel operations,” Caldwell said. “The establishment of Rouge Steel is the first step in a new Ford plan to view its various businesses as independent entities.” Shortly afterward, Ford placed Rouge Steel on the market.

In the summer of 1982, a consortium of Japanese companies under the leadership of Nippon Kokan (NKK) began negotiations with Ford for the purchase of Rouge Steel. NKK wanted to buy seventy-five percent of Rouge at a purchase price of several hundred million dollars, and the Japanese firm had proposed a multi-million dollar modernization plan that would include installation of a high-tech continuous steel casting system and a galvanizing operation. Talks between Ford and NKK collapsed in 1983, however, because the Japanese wanted to reduce Rouge’s labor costs. Workers at Rouge Steel—organized under the UAW rather than the U.S. Steelworkers because of Rouge Steel’s origin within Ford Motor—maintained an hourly rate of pay almost $5 higher than the U.S. industry standard.

Following the failed talks with NKK, officials at UAW Local 600 began to negotiate with Ford over proposed wage reductions at Rouge Steel. Philip Caldwell had announced that Ford Motor was suffering its worst economic downturn since the Great Depression: in the four years preceding 1983, Ford had lost $2.1 billion and had eliminated 67,000 workers from a workforce of 158,000. Clearly, operations at the Rouge had to change, and meetings between Caldwell and UAW Local 600 president Michael Rinaldi in the summer of 1983 resulted in wage and benefit reductions for Rouge Steel workers. In return, Ford agreed to spend $300 million for a new continuous casting system and an electro-galvanizing facility and rebuild a coke oven battery. The agreement proved to be a watershed in Rouge Steel’s history.

Over the next three years, Ford began an intensive program of investment in new equipment for the steelmaker. Over $300 million worth of improved technologies were purchased, including a rebuilt coke-oven battery, a sophisticated continuous casting system, and an electro-galvanizing operation which was opened as a joint venture between Rouge and U.S. Steel, dubbed Double Eagle. The new galvanizing operation was capable of producing 700,000 tons of galvanized sheet metal per year for use in automotive factories, the largest such operation in the world.

Installation of the continuous caster was a landmark event, and brought Rouge back into a competition with other U.S. steelmakers. The new facilities reduced the cost of producing slab steel by $40 per ton as well as increasing the quality of the steel produced. The system was installed in cooperation with Hitachi Zozen officials as technical advisor.

In 1986 Rouge Steel president Paul Sullivan commented in an interview with Automotive News that “It’s sad, but the truth is steel technology has left the U.S. We’re no longer leaders, but followers. All the new equipment made in the U.S. today is based on technology that either originated with or was refined by the Japanese.” This turn of events was ironic: Henry Ford had envisioned a continuous casting operation as early as the 1920s, according to company historian Alan Nevins. In his official company history, entitled Ford: Expansion and Challenge, Nevins wrote: “Just as [Ford] had modified the methods of manufacturing iron, he meant to improve the making of steel. He was convinced that a flow of production could be established. For example, he envisaged open hearth operations as continuous, raw materials being added from time to time, and the molten metal drawn off as needed and made directly into castings.” The Rouge, however, waited almost seventy years for such a system to be installed.

Along with heavy investment in new equipment, Ford spent $10 million in 1986 on an innovative re-training program for 232 employees: the Rouge workers were given 30 weeks of instruction in the use and maintenance of the continuous casting equipment, and core groups were sent to steel plants in Japan to train with experienced operators. Another group of Rouge employees worked with LTV of Cleveland, Ohio, and their continuous casting equipment. Most of the re-trained employees had been working with traditional steelmaking methods for up to fifteen years and the training they received stressed flexibility. “The idea was to have a crew in which anybody could do anything,” Hivens A. Gill told Iron Age magazine. In order to achieve that flexibility, more traditional UAW work classifications had to be relaxed to provide for only two classes of maintenance workers: mechanical and electrical.

In 1988 Rouge Steel finished its fiscal year in the black for the first time in over a decade, and by the end of the year, almost seventy percent of the steelmaker’s output was produced in their new continuous casting facility. Improved relations between the Rouge’s management and UAW leaders in conjunction with the success of Rouge Steel’s updated casting and galvanizing facilities enhanced the steelmaker’s position in the highly competitive U.S. market, particularly in the Midwest’s aging Rust Belt. Rouge continued to re-invest in upgraded equipment during 1988 and 1989, with $100 million spent in 1988 alone. The company improved the quality of their steel with the purchase of a ladle metallurgical/re-heating facility and an innovative vacuum de-gassing operation, and improved the efficiency of their existing equipment by computerizing hot strip mill controls to improve consistency and installing enhanced equipment on different mill processes. Rouge also converted their powerhouse boilers to permit the use of both coal to natural gas in an effort to reduce power costs. The improved steel-making technologies and worker training at the Rouge made the company more productive than ever before in its history: Rouge Steel produced 69 percent more steel in 1988 than it produced thirty years earlier.

Rouge Steel was still up for sale in 1988, despite the turnaround in the company’s balance sheets. David Blackwell, president of Rouge Steel in 1988, commented that “Ford has recognized that steel is not their area of expertise and they have determined that steel is not a core part of their business.” Ford’s decision to sell the plant was based on the assessment that Rouge would be a stronger company and a better supplier as an independent entity. Talks between Ford and interested buyers continued.

On December 15, 1989, the Marico Acquisition Corporation acquired eighty percent of Rouge Steel’s stock from the Ford Motor Company, and Marico merged with Rouge Steel. Marico, headed by Carl Valdiserri, former executive vice- president of Weirton Steel Corporation, had been formed in 1989 for the express purpose of gaining equity ownership of the Rouge. In addition to Valdiserri, Worthington Industries, Inc.—a Columbus, Ohio-based steel fabricator—gained a strategic equity interest in Rouge Steel. As part of its investment in Rouge Steel, Worthington agreed to a long-term purchase agreement to buy a minimum of fifty percent of its flat-rolled requirements. The deal assured Rouge an opportunity to increase its business as well as guaranteeing Worthington a dependable long-term steel supply at competitive prices. Ford retained an equity interest in Rouge Steel and continued to purchase between thirty and forty percent of the steelmaker’s total annual output.

Rouge Steel entered the 1990s in a favorable position, considering the weakened condition of the U.S. steelmaking industry. Paul Sullivan, head of Rouge Steel from 1983 to 1986 had called Rouge “a beleaguered company in a distressed industry.” With Ford’s purchase of up-to-date casting facilities, new labor contracts between the UAW and Rouge’s management, and the completion of an extensive modernization of the company’s mills in 1988, Rouge Steel had pulled itself from a fifteen-year decline in profitability and efficiency to become an ambitious player in the American steel industry.