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Nucor Corporation is the second-largest steel manufacturer in the United States. Its approach to steel production is predicated upon drastically undercutting both foreign and domestic competition, a feat it has accomplished through no small amount of hard work, risk-taking, and visionary thinking. For all practical purposes, Nucor launched the steel minimill industry in the late 1960s. Since that time, minimills have increasingly edged the large integrated steel companies out of most niche markets, and, led by Nucor in the late 1980s, have made a bold entry into the flat-rolled steel market, the last domain of Big Steel. Nucor has maintained profitability and a furious growth rate in a difficult economy and in a virtually non-growth industry, and is striving aggressively to supplant U.S. Steel as the nation's number one steelmaker by the year 2000. The company was a perennial favorite of Wall Street into the mid-1990s; since that time, however, increasing competition in the areas that Nucor pioneered has presented the company with significant challenges.
Turn of the Century Origins
Nucor traces its origins to the turn of the 20th century, when automobile inventor Ransom Eli Olds founded the Olds Motor Works in Lansing, Michigan, with the considerable aid of venture capitalists. In 1904 Olds, dissatisfied with his lack of control over the business, abandoned it to found a new company, R. E. Olds Company; the name was quickly changed to Reo Motor Car Company to avoid a lawsuit over the use of the "Olds" name. From 1904 until 1924 Olds served as president of the company, before turning to real estate speculation, an unfortunate business move that ultimately led him to sell most of his Reo stock. When demand for the luxury cars manufactured by Reo plummeted during the Great Depression, the plant began making a number of other products, including lawn mowers and the Reo Speedwagon delivery truck. Olds died in 1950, and his namesake company, which had survived one bankruptcy, was now headed toward another. By December 1954 the company was all but dead; however, when stockholders were informed of plans for liquidation in 1955, a small, contentious group found a glimmer of hope in a tiny Reo business property, Nuclear Consultants, Inc. According to Nucor chronicler Richard Preston, what followed was "a forced takeover, an unusual move in corporate finance, wherein the dissidents forced Reo to take over Nuclear Consultants against Reo's wishes." When the paperwork was complete, Reo was reborn as Nuclear Corporation of America and became the first publicly traded nuclear company. Various publicity stunts and the power of the word "nuclear" propelled the company and its stock skyward. Yet its business endeavors in nuclear instrumentation, nuclear energy, chemicals, and electronics bordered on the illusory. A series of largely unrelated acquisitions, funded through stock offerings, sustained the company. One of these subsidiaries, Vulcraft, led to the establishment of Nucor.
In 1962 F. Kenneth Iverson, then a young mechanical engineer, became general manager of Nuclear's Vulcraft division in Florence, South Carolina. It soon became apparent that Vulcraft, a metal fabrication business specializing in steel joists and girders, was virtually the only healthy division in the conglomerate. A string of money-losing years led the Nuclear Corporation to the verge of bankruptcy in 1965. By this time Iverson had been elevated to group vice-president and transferred to the parent company's headquarters in Phoenix. Essentially, Nuclear was a business with $20 million in sales and $7 million in assets that was losing $400,000 annually. Two major loan defaults that year caused the president to resign and the board to appoint Iverson as the new president and CEO; the logic governing the decision was that Iverson had been in charge of the only divisions within the company that were profitable.
Restructuring in the 1960s
Taking over at mid-year, Iverson dumped half the divisions, reduced management positions from 12 to two, and posted the last loss ever for the company, some $2.2 million. Now came decisions regarding Nuclear's future operations. At this point, Vulcraft, with its South Carolina plant and another in Norfolk, Nebraska, held the greatest promise for growth. In 1966 Iverson committed himself to Vulcraft's steel joist industry, relocating to Charlotte and establishing corporate headquarters in a modest 2,000 square foot office. During the first three years under his management, Nuclear's net sales rose from $21 million to $35 million, largely on the virtue of Vulcraft's dominant 20 percent share of the joist market. Although profits kept pace with this growth, Iverson was concerned with Vulcraft's dependency on others for its steel. Until Vulcraft graduated from steel fabricator to steel producer, its earnings were entirely dependent on steel prices outside its control.
In 1968 Iverson, in the first of several momentous decisions for the company, prepared Nuclear to become a minimill steel producer. His initial goal was to manufacture bar steel at a price competitive with foreign producers, who had been supplying up to 80 percent of the company's raw material. The goal was perhaps unrealistic, for Iverson would also be taking on such giants as U.S. Steel, a chief Vulcraft supplier. Furthermore, the construction cost for a traditional coke-and-iron steel mill was prohibitive. However, steel could be created another way: by melting scrap steel in electric-arc furnaces. Iverson took the gamble by effectively mortgaging the company for a loan of $6 million. The money was used to erect a plant in rural Darlington, South Carolina, and purchase the necessary equipment, a furnace, a continuous casting machine, and a rolling mill. According to Success, Iverson "recruited farmers, sharecroppers, and salesmen to do the dirty, often dangerous work of making steel. High technology and untrained troops made for a volatile mix, and delays and catastrophes caused stock prices to drop to pennies. But a legendary company culture was born: inventive, resourceful, team oriented, inspired by impossible challenges."
The delays and catastrophes centered around the plant's casting machine, which experienced regular breakouts of hot steel from the time production began in June 1969 until late 1970, and the newness of the venture in general. Depressed earnings finally rebounded spectacularly in 1971, jumping 140 percent. In 1972, they leaped another 70 percent. This same year, Iverson dropped the company's outmoded title and renamed the business Nucor Corporation. Nucor was now at the brink of the so-called golden era of the minimills. It had two successful operations: Vulcraft, which supplied joists to the construction industry, and Nucor Steel, which produced low-cost bar steel, largely for Vulcraft. Both posed a threat to the big steelmakers, but they were slow to respond. A flurry of minimills arose during the 1970s, following Nucor's lead and producing bar steel for the joist business at prices that eventually drove Bethlehem, Republic, and others out of the market.
In 1977 Nucor launched its second assault on Big Steel by branching out into steel decking, for use in floors and roofs supported by its Vulcraft joists. Two years later the company again led the minimills by manufacturing cold-finished bars, employed in shafts and precision parts. By the end of the decade, Nucor ranked among the top 20 steel companies in the country, with sales of $430 million and net earnings of $42 million. Within a five-year span, it had more than tripled production through a series of new mill constructions. Its core business, Vulcraft, had also expanded through new plant openings and had virtually secured its position as the biggest steel joist producer in the United States. The one blemish on these years of fast-paced growth was a mill fire accident in 1974 that killed four Nucor employees.
The company would later face criticism from its competitors, the media, and community leaders that its operations were needlessly dangerous. Much of the criticism stemmed from the fact that Nucor's workforce remains nonunion and is therefore subject to lower wages and less assurance that a certain working environment will be maintained. Nevertheless, the dynamic Nucor work ethic and corporate culture, shared by management and employees alike, offered something unions would find impossible to provide during the 1980s: job security. In an industry plagued with plant closings, cutbacks, and layoffs, Nucor stands out as one company firmly committed to its steelworkers. No Nucor employee has ever been laid off; to hold down costs during difficult downswings, Nucor instead asks its workforce to reduce hours. As for wages, the company's stringent team performance standards offer incentives to employees to exceed production goals and, as a result, receive bonuses that can more than double their annual wages. The employees have also benefitted from such unusual policies as guaranteed college scholarships for their children, a policy first established when Iverson wanted to help the families affected by the 1974 accident. Nucor attributes much of its success to its nonunion, nonurban employees. As its brochure The Nucor Story states: "A major ingredient in Nucor Corporation's success has been its commitment to locate its diverse facilities in rural locations across America. As a result of deliberately selecting non-urban locations, Nucor has been able to establish strong ties to its local communities and its work force. The ability to become a leading employer and pay a leading wage has been a key to attracting hard-working, dedicated employees."
Such simple, effective strategies have become the trademark of the company and its CEO. Another important ingredient in the company's success is its sparse management staff. Only four management layers exist inside the company, beginning with the CEO and leading directly down through general managers, department heads, and foremen to the general laborers. All wear identical hard hats, as a tribute to teamwork and as a further sign of differentiation from unionized companies. The small staff, modest headquarters, and relentless drive to become a world-class competitor have all made for a supremely cost-conscious corporation in which new technologies are seized, decisions made swiftly, and production encouraged apace.
Iverson's races into new steel industries and new technologies during the 1980s were necessitated not by Big Steel, which was floundering, but by other American minimills and by the new world leader, Japan. In 1986 the CEO decided to tackle the last frontier, sheet steel--an expensive and prized market that no minimill had dared to consider. Start-up costs for manufacturing sheet steel were enormous, at more than a quarter of a billion dollars. At the time, Nucor's assets amounted to little more than twice that figure. Annual revenues stood at just $755 million. Nonetheless, Iverson took the plunge, first by exploring possibilities within the company to produce a state-of-the-art casting machine whose efficiency would trounce the competition. Although the in-house project held promise, Iverson was anxious to be the first to acquire and implement the technology, and an invention already in progress, by West German engineering firm SMS Schloemann-Siemag A.G., was chosen as the best candidate for Iverson's plans. Called the compact-strip-production machine (CSP), the invention was over 1,000 feet long and composed of some one million parts. Most experimental and most crucial to its success was a casting tower, supposedly capable of producing sheet steel just two inches thick instead of the conventional ten inches. According to Preston, "Inventors had been trying to invent a machine that would make an endless strip of steel since 1856, when Sir Henry Bessemer had tried it and failed.... Any company that could solve the problem would by definition become the global leader in the manufacture of steel." Assembly of the machine began in 1988 at a new plant site in Crawfordsville, Indiana, and by mid-1989 the first experiments were begun. Throughout the period, the Crawfordsville Project and the CSP attracted a shower of criticism from the big steel companies, as well as a jumble of stock trading and public speculation.
Safety Issues in the 1990s
Under plant managers Keith Busse and Mark Millett the CSP was eventually completed, and despite delays, breakouts, and one fatal explosion in January 1990, the Crawfordsville plant was soon operating near capacity, producing flat-rolled steel in one-fourth the time of its competitors at $45 less per ton. Busse had said, "What we're doing in Crawfordsville is like taking a Conestoga wagon for the first time across the plains." Iverson, looking to the future, had remarked, "We are going to leapfrog Japan." Neither was overstating the enormity of the Nucor gamble. The freak accident, caused by a broken cable which sent a ladle of molten steel crashing to the plant floor, left one dead. OSHA (Occupational Safety and Health Administration) inspectors poured over the evidence before levying a $30,000 fine. The victim's family also sought settlement with the company. What arose from the tragedy was a renewed commitment to plant safety: a Nucor study undertaken a few years later showed that the company ranked in the top third among steel mills in terms of safety.
The company remained committed to aggressive growth, opening a second thin-slab sheet mill in Hickman, Arkansas, in September 1992. Soon, however, Nucor was facing a potential setback: the high-quality scrap on which its sheet-steel production relied was in short supply, with prices jumping 55 percent in 1993. The shortage was only expected to intensify as Nucor and other minimill operators increased their capacity. Seeking an alternative to high-quality scrap, Nucor--with its characteristic entrepreneurial flair--built an experimental $65 million plant in Trinidad and Tobago that would process cheap iron ore from Brazil to make iron carbide, an economical substitute for direct-reduced iron. The plant had an annual capacity of 320,000 tons.
Unfortunately, the plant was plagued by start-up woes. Although the conversion process itself worked flawlessly, the rapid transition from limited testing to full-scale operation encountered engineering snafus and mechanical breakdowns. A year behind schedule, the plant was registering cost overruns of 30 percent. Nucor's stock dropped precipitously on the news of the problems in Trinidad.
Domestically, Nucor continued its heavy investment and expansion. In 1993 the company opened a second mill in Blytheville, Arkansas, at a cost of $200 million, and spent $65 million to upgrade its plant in Darlington, South Carolina. While observers questioned whether Nucor could maintain its fast and flexible corporate culture as it expanded, employees and managers alike pursued the relentless innovations that kept it a step ahead of the competition. In just one example, from 1992 to 1994 employees reduced the time it took to melt steel from 72 minutes to 65 minutes--which allowed them to pour 25 additional tons of steel during a 12-hour shift. Larry Roos, manager at the Crawfordsville plant, maintained that there was so much experimentation in his shop that "half the time I don't know who's doing what out there."
At the same time, competitors in the minimill business were increasing dramatically in numbers and advancing rapidly in technical sophistication. By 1995, competitors had ten new minimills on the drawing board for launch by 1998, with an expected increase in total capacity of 40 percent. Undaunted, Nucor set its sights on being the largest steelmaker in the industry by the year 2000, in part by diversifying into new products and heavily targeting international markets.
Nevertheless, as the economy slowed and orders for sheet steel dropped off in mid-1995, Nucor was forced to cut prices, and its stock continued to take a beating. Its shares declined by more than 30 percent from 1994 to 1995.
In January 1996, COO John D. Correnti succeeded Iverson as CEO, with Iverson remaining on as chairman of the board. Said Correnti, "I just want to keep the train on track, steaming ahead."
Indeed, Nucor's growth continued unchecked. In 1997 the company announced that it would build a $150 steel beam mill in Berkeley, South Carolina, to open in late 1998. Nucor also intensified its plans for international expansion, and, like many of its competitors, targeted India, China, and Brazil--markets where demand was expected grow at three times the rate of U.S. demand. Nucor's plans included a Brazilian joint venture to build a $700 million plant in the state of Cear, which Correnti called "a chance to whet our appetite in the international market, and to make money." Gunning for that number one position, Correnti will need both.
Principal Subsidiaries: Nucor-Yamato Steel Company; Vulcraft; Nucor Cold Finish; Nucor Grinding Balls; Nucor Fastener; Nucor Bearing Products, Inc.; Nucor Building Systems.
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