Intermet and Scrap Steel Price Shocks Intermet is a producer of automobile parts for new cars. They supply nearly every major car company with breaks, steering components, and other parts. The skyrocketing price of scrap steel, the raw material of the company's iron-based production, has taken the company from solid and profitable to bankruptcy in less than two years.
The company has two divisions; based upon the two types of materials it manufactures its products from. One is the Light Materials division, which uses aluminum and other lightweight metals as materials. The other is the Ferrous Metals division, which uses scrap steel as its raw material. The Ferrous Metals division is the much larger of the two, comprising 67% of sales in the first two quarters of 2004 (10-Q).
Intermet is not in a very flexible financial position. Manufacturing of this type has very high fixed costs. This overhead must be covered before any true profits can be earned. The sales amount at which this coverage
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