Heavy machinery manufacturer Caterpillar is to permanently reduce its workforce by between 4,000 and 5,000 people between now and the end of 2016 as part of a massive cost-cutting drive that includes a reorganisation of its dealer and customer support divisions, citing a weaker sales and revenues outlook.
These job cuts, which will be kicked off through a voluntary retirement program, could be the tip of the iceberg, with the Illinois-based company warning of total job losses of 10,000 should it decide to consolidate and close manufacturing facilities through 2018.
In a statement Caterpillar said the “significant restructuring and cost reduction actions” are expected to lower operating costs by about $1.5 billion annually once fully implemented.
“The cost reduction steps will begin in late 2015 and reflect recent, current and expected market conditions,” the company says. “For 2015, the company’s sales and revenues outlook has weakened, with 2015 sales and revenues now expected to be about US$48 billion, or US$1 billion lower than the previous outlook of about US$49 billion.
“For 2016, sales and revenues are expected to be about 5 percent below 2015,” it adds.
This year is the company’s third consecutive down year for sales and revenues, and 2016 would mark the first time in Caterpillar’s 90-year history that sales and revenues have decreased for four years in a row.
Slightly less than half of the $1.5 billion of cost reduction is expected to be from lower Selling, General and Administrative (SG&A) costs, including changes to the Distribution Services Divisions – Cat’s primary interface with dealers.
Effective on 1 November 2015, The Distribution Services Divisions will be reduced to two from three but “maintain sole responsibility for dealer development and performance, succession and continuity, along with portfolio management, operational excellence and Across the Table strategy execution”.
Australian dealers fall under the Asia Pacific, CIS, Africa & Middle East Distribution Division, which will be run by Cat vice-president Raymond Chan. VP Phil Kelliher will head the other division covering dealers in North and South America and Europe.
In addition, four new divisions have been created: the Global Aftermarket Solutions Division, which combines aftermarket sales and marketing resources; the Wear Components & Aftermarket Distribution Division, which merges the design and manufacturing of components and aftermarket distribution; the Marketing and Digital Division, which will “establish a go-to-market strategy for the integration of data analytics”; and the Sustainable, Work Tools & Industry Solutions Division, which brings together the sustainable businesses of Cat Reman and Caterpillar Safety Services with the company’s machine attachment business – Cat Work Tools (design and manufacture).
On the mining side, Caterpillar Mining Sales & Support Division VP Chris Curfman is retiring, and his division will be integrated into the existing Global Mining machine business divisions, bringing product, operations, sales and marketing organisations together in both the surface and underground mining applications.
“The surface mining sales and support teams will join the Hauling & Extraction Division, which will be renamed the Surface Mining & Technology Division, led by vice president Tom Bluth,” Caterpillar says.
“The underground mining sales and support teams will join the Material Handling and Underground Division, led by VP Denise Johnson.”
The remaining cost reductions are expected to come from lower period manufacturing costs, the company says, including savings from additional “contemplated facility consolidations and closures”, which could impact more than 20 facilities and slightly more than 10 percent of Cat’s manufacturing square footage.
“We are facing a convergence of challenging marketplace conditions in key regions and industry sectors – namely in mining and energy,” Caterpillar chairman and CEO Doug Oberhelman says.
“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.
“Our strategy is to deliver superior total shareholder returns through the business cycle, and growth is a key element of that strategy,” Oberhelman says. ” However, several of the key industries we serve — including mining, oil and gas, construction and rail — have a long history of substantial cyclicality.
“While they are the right businesses to be in for the long term, we have to manage through what can be considerable and sometimes prolonged downturns,” he adds.
These layoffs, closures and organisational changes are the latest in a number of cost-cutting measures Caterpillar has had to take in recent years. Since 2013, the company has closed — or announced plans to close or consolidate — more than 20 facilities. It has also already reduced its total workforce by more than 31,000 since mid-2012.
“We recognise today’s news and actions taken in recent years are difficult for our employees, their families and the communities where we’re located,” Oberhelman says. “We have a talented and dedicated workforce, and we know this will be hard for them.”
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