The economic recovery hasn't gone well for Caterpillar Tractor Co., and the chances now seem good that the recovery might be gone before Cat gets much out of it.
In fact, the 1980s so far have been a bad decade for America's premiere construction equipment maker, which has just completed its third straight year of massive losses.
Like other big American corporations that make up the nation's industrial base, Caterpillar has been devastated by international competition and the long slump in the worldwide economy. Although sales began to recover last year from the disastrously low level of 1983, when they were 41% below 1981's levels, Caterpillar still lost $177 million in the first nine months of 1984, following losses of $345 million in 1983 and $180 million in 1982.
Analysts are expecting Cat's loss for all of last year, which is likely to be reported later this month, to top $200 million, and they add that Cat's outlook for 1985 is shaky at best. Even Caterpillar's management expects only "modest improvement" this year.
What is particularly embarrassing for Caterpillar about all this bad news is that the company hasn't made any money since it was showcased three years ago as one of America's best-managed companies in the book, "In Search of Excellence."
(Ironically, soon after the book was published in 1982, Caterpillar endured a seven-month strike by its unionized U.S. work force that helped push the company into the slump from which it has yet to recover.)
But unlike other companies in the auto, steel and machine tool industries, Caterpillar, headquartered in this central Illinois town, isn't crying about imports. Instead, it's worried about exports, and about maintaining its historical position as one of the nation's leading exporters of manufactured goods in the face of increasing Japanese and European competition in overseas markets.
While Caterpillar is still a dominant No. 1 in the earth-moving equipment business both in the United States and overseas, foreign firms--especially Japan's Komatsu Ltd.--are rapidly chipping away at Cat's worldwide market share, at least in part because of the strength of the U.S. dollar, which has made Cat's products more costly relative to equipment made overseas.
"We are still a net exporter, and we anticipate that we will continue to be one for some time," says Caterpillar Chairman Lee L. Morgan, who is retiring at the end of January. "But our numbers are significantly down."
Because of the company's higher costs of production in the United States, Morgan adds, the trend at Caterpillar is now toward using Cat's European operations and its Japanese joint venture with Mitsubishi Heavy Industries to produce equipment for the Third World and other overseas markets, while U.S.-built products are targeted primarily for sale in North America. (South Korea's Daewoo Heavy Industries is also about to begin building lift trucks for Caterpillar for sale around the world.)
"Eventually, we may cut back on the parts of the world we serve out of the United States," Morgan says. "Ultimately, we may reduce the size of our U.S. operations to the point where they are just large enough to serve the U.S. market. So rather than importing more goods, we might just export less."
But as foreign competition has increased, many of Cat's key overseas markets (especially in the Third World, which has traditionally accounted for about 20% of Caterpillar's U.S. exports, and 30% to 40% of sales of all Cat products made worldwide) have virtually dried up.
Falling oil prices and lower production levels have made it more difficult for Middle Eastern oil-producing nations to buy new equipment for their big construction projects, while the growing debt crisis plaguing other, non-oil-producing underdeveloped countries has also reduced their ability to pay for Cat's huge bulldozers and other earth-moving products.
The increasing weakness of its export markets represents a serious reversal for Cat, and is at the heart of the company's continuing financial woes even though domestic sales are strengthening. For although exports may be little more than frosting on the cake to many big American manufacturers, Caterpillar's fortunes are directly linked to overseas sales.
Caterpillar's exports fell from $2.6 billion in 1982 to less than $1.6 billion in 1983, and during the same period, the company fell from fifth to eleventh place on Fortune magazine's annual survey of the largest U.S. exporters.
Exports as a percentage of Caterpillar's sales fell from 40.5% in 1982 to 29.2% in 1983, according to the Fortune survey, and Morgan says that of the 20,000 U.S. jobs eliminated at Caterpillar since the company's slide began in 1981, about 15,000 have been lost because of reduced foreign orders.