Caterpillar is strategizing to consolidate its future

It was a good year for most of the construction companies and so was for the heavy equipment companies but not all were doing well in the year 2015. Some heavy equipment companies were incurring losses for the last few years and they were thinking of downsizing their labor force. But they were not able to take the call as the overall industry was doing well. Perhaps they were looking at the global picture which seemed to be pleasant but with reference to the situation in the United States, it was a bit worrisome. Not all heavy equipment companies in the US were making profits and especially the giant ones were certainly not seeing any profits in their book of accounts. They made some profit in a couple of quarters but when it was time to check the fiscal growth, the situation looked dim.

One such giant company that is experiencing a hard time showing profits is Caterpillar. It seems that the primary reason for them incurring losses is having started lot of units in every part of the country. Now they have to employ people to run the unit and also port machines from one place to other which involve huge costs. Other than that, they have pledged to manufacture excellent quality machines for which they require to invest chunk of money on research and development work. As a result of this, the final product produced by them is a bit higher than the machines of other heavy equipment companies. Not every construction company can afford to buy CAT machines and they majorly sell them to big construction and mining houses. Therefore it is utterly futile to have so many units across the country and hence the first step that they will take to consolidate their position is to crack down the units that are not performing up to the mark.

Cat is planning to reduce its salaried workforce of around 4000 to 5000 employees till the end of 2016. This also includes the guys who are operating in the agency. It has also planned to shut down most of its units and manufacturing facilities by the end of this year and the process may even extend till 2018. It also planned to offer voluntary retirement scheme to most of its qualifying employees. “It will be sad to part ways with the employees but that is the want of the situation and in order to sustain in this market, strong steps are required to be taken” were the words of one of the CAT’s spokesperson.

Primarily, the major part of cost reduction is to be done from curbing Administrative costs. It seems the company spends a whopping amount on Administrative costs which will be cut down across states once the non-profitable units and the manufacturing facilities are closed down permanently. The company has to take the tough call in the year 2016 so that it can expect good returns in the following years to come.