A key supplier of steel to General Motors is threatening to cut off shipments because of a dispute over contract terms that has turned into a legal battle, The New York Times (NYT) reported on Friday.
The paper said that the halt of steel shipments from AK Steel, based in Middletown, Ohio, could lead to layoffs at 15 GM factories and tens of millions of dollars in losses a day.
“We’ve been trying to resolve this for some time and have not been able to,” said AK Steel spokesman Alan McCoy told the NYT.
The steel company would not comment on whether it had set a deadline for halting shipments, the NYT added.
According to the New York Times, citing a report by industry trade publication American Metal Markets, the dispute between GM and AK has led to counter filings in courts in Michigan and Ohio in recent months, but has not been publicised, No court date has been set in either state, the paper said.
The newspaper said that the dispute centres on long-term steel contracts that run from the beginning of 2000 through to the end of 2004. Under the terms of the contracts, the price paid by GM declines over time. But AK Steel contends in court filings that new inspection, testing and quality control systems requested by GM increased its costs and that it was not compensated, as required by the contract, the New York Times said.
“There’s a clause in our contract that stipulates if we incur higher costs to supply steel as a result of increased testing and other changed requirements, that we recoup those increased costs,” AK’s McCoy told the newspaper. “General Motors has another view of that.”
GM spokeswoman Renee Rashid-Merem told the New York Times: “We’re expecting them to meet the quality requirements that are part of the contract and we expect them to deliver the steel in accordance with our contract. Whether they’ve had to incur new processes or additional costs to meet the quality requirements, that’s their issue to manage.”
The NYT said the the dispute is a sign that the balance of power between steel companies and automakers is less one-sided than it used to be. Since the steel industry went through a wave of bankruptcies and the Bush administration imposed a 30% tariff on imported steel, the remaining domestic steel companies have had, if hardly boom times, more leverage.
According to the NYT, Morgan Stanley analyst Wayne Atwell said that in previous years “the auto industry was the eight-foot gorilla and would force the steel industry to go along with what was necessary.”
Consequently, you wouldn’t get paid for extras or different inspections or specs,” he told the newspaper. “You had to swallow those higher costs.”
Now supply is tight, Atwell told the newspaper, and it would be difficult for GM to replace its supply from AK easily.
“It would be hard,” Atwell said, according to the NYT. “AK is one of the top quality suppliers, and supply is really limited now. Could you get that steel? You might be able to get some of it. But you couldn’t replace it all on a short-term basis.”
The New York Times said that AK Steel, which was this week named the lead bidder for the bankrupt National Steel Corporation by a federal bankruptcy court judge, was also involved in a dispute over prices with Honda last year, though that did not go to court.
The newspaper said a cut-off from such a major supplier could slow or stop production of many of General Motors’ brands.
“Any part is critical, especially in such a large volume operation,” GM’s Rashid-Merem told the New York Times. “They provide directly or indirectly 15 plants in North America. As any just-in-time company, any interruption of supply would significantly interrupt our operations,” she added, according to the newspaper.