Stelco & General Motors, DaimlerChrysler reach agreement
According to recent news in the market, General Motors (GM), Stelco's largest customer making up 10% of the company's sales, had threatened to cancel its contracts with Stelco and seek its steel supplies from alternative producers due to the threat of a strike by 1'000 Stelco workers at the company's Lake Erie works in Nanticoke, Ontario. Stelco,
Canada's largest steel producer has been under bankruptcy protection from creditors since January 2004.
Also, in a second major blow to Stelco, another automaker and major Stelco customer DaimlerChrysler (DC), on October15, also announced it would seek an alternative supply of steel if Stelco could not guarantee its supply commitments to the automaker by the end of October.
However, in recent developments, Stelco has reached an agreement with DaimlerChrysler and General Motor which will allow Stelco to keep the two automakers as its customers. In line with the agreement, General Motors has agreed to give Stelco 30 days to reach a new contract with the United Steel Workers of America (USWA) labor union of which its steelworkers are members otherwise the automaker will find another steel supplier to meet its steel needs in the last 3 quarters of 2005.
General Motors is permitted to purchase steel from other suppliers in the first quarter of 2005, but will require Stelco to negotiate a new contract with the USWA by November 18th and provide adequate assurances that it will have financing in place to emerge as a healthy company from the Companies' Creditors Arrangement Act (CCAA) protection.
DaimlerChrysler (DC), on the other hand, had given Stelco an October 31 deadline to give it assurances that steel supplies would not be interrupted by the strike of 1'000 steel workers. However the company has recently agreed to extend the deadline to November 18.
In the agreement reached with the Ontario Superior Court, Stelco was given approval to begin soliciting bids for the sale of its non-core businesses, as well as the permission to start the process of raising capital for its core businesses.
However, if Stelco cannot reach an agreement with its steelworkers, there is a possibility that Stelco will have to be sold or cease operations as they will not be able to sustain themselves without their largest customer.