steel makers, economic crisis
Itsuo Inouye/AP

Fallout From Struggling Banks and the Auto Industry Continues to Spread

January 02, 2009 04:14 PM
by Lindsey Chapman
Economic woes facing banks and auto manufacturers are trickling down to steelmakers and other big industries.

Slump for the Steel Industry

When the Big Three car companies started struggling for financial survival, steel replaced the auto industry as a main indicator of how the economy was doing, according to The New York Times. The steel industry entered the economic recession “in the best of health,” but now it, too, is pressing for some sort of governmental assistance.

“As steel production goes—and it is now in collapse—so will go the national economy,” writes The New York Times. For a time, steelmakers had been filling orders from manufacturers and builders, but now they are taking orders from the government.

Part of the trouble facing the steel industry came from slowdowns in the auto industry. As sales slowed, manufacturers began building smaller cars made of less metal, the Associated Press explains.

The credit crisis is also in the mix. Wholesalers, unable to access credit to buy steel in large quantities, have cut down their steel purchases. Construction and industrial equipment markets are also watching their budgets more carefully.

“Business froze, credit froze and people stopped buying everything, including steel,” Michelle Applebaum, an industry analyst, told the AP.

With the slowdown, steelmakers now find themselves waiting to hear more about a stimulus plan from President-elect Barack Obama and a public investment program that could total up to $1 trillion over two years. Little is known about Obama’s recovery plan at this point, but officials have indicated that more money will be diverted toward infrastructure spending than tax breaks.

“What we are asking … is that our government deal with the worst economic slowdown in our lifetime through a recovery program that has in every provision a ‘buy America’ clause,” Daniel R. DiMicco, chairman and chief executive of Nucor Corporation, a steel maker, told The New York Times.

Background: Effects of a struggling auto industry and the mortgage crisis

As automakers pressed for financial relief from Congress, they had a tough time making their case. In the third week of November, the three auto CEOs laid out their cases for a $25-billion bailout. GM requested $10 to $12 billion, Ford sought $7 to $8 billion, and Chrysler asked for $7 billion. But by the end of the week, congressional leaders announced that they weren’t persuaded, and told the automakers to submit more detailed plans by Dec. 2 that explain how they plan to use the money to assure their long-term success.

However, the Ann Arbor-based Center for Automotive Research indicated “that 1 in every 10 jobs is directly or indirectly affected by the automobile industry and the failure of the three Detroit automakers could result in the loss of 3 million jobs in the first year,” according to the Detroit Free Press.

The mortgage crisis took hold months earlier. Overvalued properties, delinquent buyers and a glut of new homes placed stress on economies that have become increasingly dependent on real estate and construction. As the housing crisis expanded, some countries witnessed the effects in other sectors, including construction and home furnishings, with global brands, such as Ikea, seeing decreased consumer sales.

Related Topic: Other industries in trouble

The mining industry has also experienced some after-effects of the trouble in housing, auto and other industries. Some investors saw mining stocks fall by half in 2008, but coal, which is used in electricity production, and gold, are not in the same boat as their counterparts.

“Health care workers often reassure themselves with the morbid joke that people will always get sick,” NPR reported, but even illness no longer seems to be a guarantee of business for hospitals. “The factors which are driving the overall economic downturn have conspired in some ways to almost set up a perfect storm for hospitals,” Steve Tringale, who works for a national health care consulting firm, explained. State budgets are getting tighter, which affects hospital reimbursements, and as people lose jobs and health insurance, they are putting off medical care like elective procedures when possible.

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