Auto trade group opposes Cliffs-US Steel merger

The Alliance for Automotive Innovation (AAI), a Washington-based trade group with passenger vehicle producers and technology sector suppliers as its members, has sent a letter to two U.S. senators and two representatives with antitrust responsibilities expressing concern about a bid by steelmaker Cleveland-Cliffs to buy its rival United States Steel Corp.

The letter from AAI President and CEO John Bozzella reads, “A consolidation of steel production capacity in the U.S. will further increase costs across the industry for both materials and finished vehicles, slow electric vehicle (EV) adoption by driving up costs for customers, and put domestic automakers at a competitive disadvantage relative to manufacturers using steel from other parts of the world.”

This summer, the bid by Cleveland-based Cliffs to acquire Pittsburgh-based U.S. Steel went public despite the seeming reluctance of U.S. Steel executives to consider the bid.

The companies are the sole remaining operators of basic oxygen/blast furnace steel mills in the U.S. Both companies also produce grades of “electrical steel” used in several applications, but with those in the EV sector considered a likely growth market.

“The potential concentration in domestic steel production that will result from this proposed transaction deserves antitrust scrutiny from the subcommittee and government regulators," the AAI letter to Sens. Amy Klobuchar and Mike Lee and Reps. Thomas Massie and J. Luis Correa reads. "In particular, the government should examine the potential for anti-competitive pricing of materials used by steel-reliant automotive manufacturers.”

The trade group, which represents auto manufacturers producing most vehicles sold today in the United States, points to several aspects of a combined Cliffs-U.S. steel entity it views as potentially anti-competitive.

Factors listed include: owning nearly all U.S. iron ore mining and processing facilities and 100 percent of blast furnace production in the U.S. and that more than 90 percent of U.S. advance high-strength steel used for automotive underbody panels, bodyside reinforcements and impact areas would be made by the combined company.

The AAI also says a merger without any antitrust conditions would create a company with 80 percent of body in white (BIW) steel used to produce a vehicle’s structural frame and 65 percent of U.S. exposed-grade steel used for automotive surface panels like doors, hoods and fenders.

In urging the legislators to consider a review of the potential merger, Bozzella points U.S. Steel management's reluctance to accept the offer. “Indeed, in rejecting the Cleveland-Cliffs proposal, the president and CEO of U.S. Steel said his company needed further clarity on several issues including ‘regulatory risk’ and answers to ‘questions that would need to be better understood in order for both of us to appropriately assess the antitrust risk of your proposal," Bozzella writes.

With U.S. Steel currently considering offers to purchase its assets, the AAI letter seems to serve more as a notice that if U.S. Steel accepts the offer, there will be questions asked.