American steel producers are using an outdated tariff to impose exorbitant prices on the auto industry, and failure to remove the tax will cost auto makers untold millions, a coalition of the Big Six auto makers says.

Meanwhile, steel makers, in a recent teleconference with reporters, claim eliminating the penalty will leave them vulnerable to cut-rate foreign producers.

The dispute promises high drama today (Oct. 17) in Washington, where federal regulators will review the measure, enacted in 1993 to stem the flow of low-priced corrosion-resistant steel from Australia, Canada, France, Germany, South Korea and Japan.

The original provision, which was renewed in 2000, was designed to counter dumping. But auto makers claim the countries named in the tariff order are no longer a threat to the domestic industry, if only because they prefer domestically produced steel – but not at artificially high prices.

In addition, the tariff has spawned scurrilous business practices, auto makers say.

A “major integrated steel company” told General Motors Corp. it would shut down production of a particular steel product if its pricing demands were not met, says Rich Cover, GM's commodity manager for steel, in an Oct. 16 teleconference.

Cover says the steel producer indicated it “had the option of taking the material out of production, depending on the negotiating outcome with our company.”

GM, Ford Motor Co., Chrysler Group, Toyota Motor North America Inc., Honda of America Mfg. Inc. and Nissan North America Inc. make up the coalition, which is supported by 10 U.S. senators.

The seven Republicans and three Democrats, who have submitted a joint letter to the International Trade Commission, claim the steel industry has rebounded strongly since the tariff was implemented and no longer needs protection.

“The assets of the 14 U.S. companies that produced corrosion-resistant steel in 2000 are now owned by only six companies, and the market is dominated by just three,” the letter says. “Those three steel companies control approximately 70% of U.S. flat-rolled steel production and have earned impressive operating profits averaging 12% of revenue since the beginning of 2004.”

In the year's first half, steel prices rose to nearly $750 for a short ton, up nearly 48% compared with its sub-$500 price tag in 2000.

emayne@wardsauto.com