“I’ve been around the sustainability topic at Caterpillar for a number of years,” says Oberhelman, who admits to being called Cat’s “corporate tree hugger,” a moniker his predecessor, Jim Owens, gave him. “Frankly, I don’t mind that so much at all.”
Beating the Recession
Cat’s new CEO is optimistic that economic recovery is on the way, but he expects sluggish growth until housing starts to pick up again. Right now, the bright spots are in mining and natural resources, he notes.
The company’s year-end earnings report, however, reflects a pent-up demand for heavy equipment in major world markets and Cat’s strategic shift to increase its global footprint. Last year, the company added about 19,000 workers, exported $13.4 billion in iron—more than 30% of its annual sales—and scooped up mining giant Bucyrus Inc., South Milwaukee, Wis., for $8.6 billion in a deal set to close midyear. It’s a far cry from the early days of the recession, when, in 2009, the company’s revenues dropped by 36.8% to $32.3 billion and net income fell 74.8% to $895 million.
“One thing I can guarantee you,” says Oberhelman, “there is a recovery coming. Just as those in the world in 2006, 2007 and 2008 said ‘The world’s changed—we’ll never have a downturn,’ you’ll have those people today that say construction will never come back. That’s dead wrong.”
A Cat employee since 1975 and a former chief financial officer at the company, Oberhelman is a fitting candidate to be leading the Dow Jones Industrial Average-listed manufacturer out of a recession. In 1981, when he was stationed as a financial manager in Uruguay, he was called upon to dig Cat out of a deep sales crisis in South America. “When I moved to Uruguay, Caterpillar had sold 1,200 machines a year in the country of Argentina,” he recalls. “In the three years I lived there, we sold four machines. That’s a depression.”
In 1991, Oberhelman moved to Japan, which was about to go through a steep downturn. “It was downhill for the four years I lived there, but again, it was a great lesson in how you have to manage cycles.”
Today, Oberhelman builds on a long-term cycle-management strategy, called Vision 2020. His predecessor Owens, an economist, initiated the outlook in the last decade and, in 2004, placed Oberhelman in charge of drafting a “trough plan,” a worst-case economic scenario forecast formulated by Caterpillar and its independent network of global dealers.
“And you can imagine, in those days, it was tough going,” says Oberhelman. “People didn’t want to hear about what happens when the bottom drops out.” Indeed, the Cat dealer ENR spoke with says the trough plan, at the time Oberhelman was writing it, became a running joke. “Everything was just blowing and going,” the dealer says. But after the U.S. economy slipped into a deep freeze in late 2008, “it turned out to be quite visionary.”
In December of that year, Caterpillar began making bold moves to protect its balance sheet from hemorrhaging. Within a month, Cat had shrunk its global workforce by 12,000 people, or 10%, and reduced some 8,000 contract positions, in addition to other cost-cutting measures. But it didn’t end there. By the following summer, the company had slashed a total of 34,000 jobs and started to make plans to restructure its manufacturing operations.
In 2010, with employee head count at about 120,000, Cat announced a profit of $2.7 billion—a threefold increase over the prior year—on revenues of $42.6 billion, a 31% year-over-year jump.
“Owens was a good guy and a good people person—don’t get me wrong—and he also shepherded the company through a very difficult time,” says Frank Manfredi, an equipment analyst in Mundelein, Ill. “But there just wasn’t the enthusiasm that I hear from Oberhelman. He’s really got the troops fired up.”
Deals in the Dirt
Cat’s decision to buy Bucyrus, a mining giant today and construction equipment manufacturer of the past (its steam shovels dug the Panama Canal), follows Cat’s intent to expand into global mining. However, Oberhelman is hopeful Bucyrus and Electro-Motive Diesel (EMD)—a train maker that Cat’s Progress Rail division acquired last summer for $820 million—will yield a greener technology path that Cat can apply to its existing fleet of heavy machinery. Bucyrus and EMD machines run on diesel-electric or electric-only power.
“We see a huge opportunity in what I call ‘power conversion’ using electricity,” says Oberhelman. “I’m not sure we know yet what that’s going to bring us, but we’ve suddenly, within a year or two, developed a tremendous amount of expertise in technology around electric power conversion. I’m pretty excited.”
As for other new offerings, Cat is using the CONEXPO-CON/AGG exhibition this month in Las Vegas to take the wraps off a new Class 8 work truck that it is sourcing from Navistar International Corp. but selling only through the Cat dealer network. In 2008, Cat made a strategic decision to exit the on-highway engine business and enter the truck business.
“Offering a severe-service truck like we are going to roll out at CONEXPO is really more down our alley,” says Oberhelman. “It’s a whole good, and the customer base for that would be the contractors we know today value our product support.” What will Cat’s first big rig look like? Oberhelman’s not saying. But in his typical form, the customer-advocating CEO does hint that it won’t come in only Cat yellow. He says, “We’ll paint that cab any way our customer wants it.”