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Caterpillar outlines extensive cost-saving, restructuring plans
Robert Brooks, Editor-in-Chief, American Machinist

Permanent workforce reductions and estimated 20 plant closings considered to reduce operating costs by about $1.5 billion/year

  • Revises 2015-2015 sales and revenues forecast
  • Global footprint under review
  • “… challenging marketplace conditions in key regions and industry sectors … mining and energy”

Caterpillar Inc. outlined an extensive restructuring and cost-saving program that will involve management and workforce reductions as well as plant closings, in an effort to address its third-consecutive year of reduced sales and revenues. The Peoria, Ill., agricultural and construction equipment manufacturer stated the actions would begin to be implemented late this year are expected to lower operating costs by about $1.5 billion.

The OEM revised and reduced its 2015 sales and revenues outlook, saying it now expects 2015 sales and revenues to be about $48 billion, or $1 billion lower than it previous outlook. For 2016, it forecast sales and revenues to be about 5% lower than 2015.

Caterpillar noted 2016 would be the first time in its 90-year history that sales and revenues will have decreased for four consecutive years.

 In addition to being a large manufacturer, Caterpillar Inc. has a global network of sales, parts and service, and remanufacturing outlets. These are in addition to finance services, logistics services, and other affiliated businesses around the world.

The cost reductions now taking effect will follow some significant actions already taken since 2013.  Caterpillar has closed or announced plans to close or consolidate more than 20 facilities in the past two years, and reduced its total workforce by more than 31,000 since mid-2012.

"We are facing a convergence of challenging marketplace conditions in key regions and industry sectors – namely in mining and energy," stated chairman and CEO Doug Oberhelman, Caterpillar Chairman and CEO. "While we've already made substantial adjustments as these market conditions have emerged, we are taking even more decisive actions now. We don't make these decisions lightly, but I'm confident these additional steps will better position Caterpillar to deliver solid results when demand improves."

In the outlined restructuring plan, Caterpillar will reduce salaried and management employment by 4,000 to 5,000 positions, permanently. Most of these positions will begin to be eliminated now, though the process will continue through the end of 2016. In all, with plant closings and consolidations, Caterpillar stated it might reduce its total employment by more than 10,000.

Some employees may be offered a “voluntary retirement enhancement program.” That effort will be engaged this year, but no further details were released.

Nearly half of the $1.5-billion cost reduction is expected to be from lower Selling, General and Administrative (SG&A) costs, which will be in effect company-wide by 2016.

The further cost reductions involve lowering Caterpillar’s manufacturing costs, including savings from “contemplated facility consolidations and closures.” This may affect more than 20 operations and more than 10% of Caterpillar’s manufacturing square footage.

Though the OEM did not offer any specific details of plants under consideration, it said the restructuring would involve plants “around the world and across our three large segments – Construction Industries, Resource Industries and Energy & Transportation.”

“There are many factors that impact these contemplated decisions and the subsequent timing of when each would be announced and implemented. Employees will be notified as decisions are made for each facility,” according to the announcement.

Some of these cost reductions are expected to be effective in 2016, with more to be seen in 2017 and 2018.

"We recognize today's news and actions taken in recent years are difficult for our employees, their families and the communities where we're located. We have a talented and dedicated workforce, and we know this will be hard for them," said Oberhelman.
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