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.. l and CAT money market. Caterpillar Financial is a strong subsidiary of Caterpillar Inc. with over $10 billion in assets and has an investment grade rating from Standard & Poor's, Moody's, and Duff & Phelps (cat.com). CAT Financial offers consumers the opportunity to rent, buy, or lease a machine from Caterpillar.
Caterpillar Financial works along side Caterpillar Inc. It offers Caterpillar's consumers a way to finance their purchases without having to go to a bank. This helps Caterpillar to get to the top of the industry because with easy financing people are more likely to buy your product. No producer in this industry has a subsidiary that works hand in hand with it. This is a major strength for Caterpillar because the easier it is for people to get financing to purchase these high quality, high priced products.Caterpillar's strengths do not end there, because it has learned that if you are not growing in the industry then you are dieing. Caterpillar announced a new Global Mining Division on October 9, 2000
This division will take effect January 1, 2001 by combining Caterpillar's current Corporate Mining Group, along with Caterpillar Elphinstone. Caterpillar created this new division to enhance the ability of CAT and its dealers to work with current Internet and information-sharing requirements for its mining customers. This demonstrates Caterpillar's commitment and focus to the mining industry and its customers (prnewswire.com). Once again Caterpillar is a strong dynamic leader in the construction and mining industries. This shows that Caterpillar is moving ahead with progress to the future, instead of settling for what it has now in the present.
It has taken this outlook, because of its many strengths. Each of these strengths by them self is not as powerful as when they are all combined. Caterpillar has done an excellent job in combining its many strengths. Caterpillar, and the world MarketHeadquartered in Peoria, Ill., Caterpillar Inc. is the world's largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. It is a Fortune 100 company, ranked #1 in its industry, with more than $26 billion in assets (CAT website). As you can see, Caterpillar is obviously a very strong and profitable company. But the largest and best companies in the world are not immune to their own weaknesses, and Caterpillar is no exception.When looking into the analyses of Caterpillar, we found a number of things that could be considered a weakness, and possible threat to the success of their business. We will first look at Caterpillar's position in the world market.
Non U.S. competition According to Fortune, The Global 500 Worlds Biggest Corporation, when looking at the worlds largest industrial and farm equipment companies by revenue, Caterpillar ranks 1st among all U.S. competition. When looking at competition outside the U.S., it's a different Story. Caterpillar holds 49% of its business interests outside the United States, so competition there is nearly important as here. Caterpillar is 5th in the world with revenues of nearly $19 billion.
This seems pretty good, but companies such as Mitsubishi Heavy Industries in Japan are pulling in over $25 billion a year. Thyssen and Mannesmann, both German companies, as well as Iri, an Italian company, also rank above Caterpillar. Earnings have declined because of economy downturns in Asia and South America, which have offset the booming U.S. construction industry, and the mining, logging and Agricultural industries remain in a deep slump (Hoovers).Economic Crisis in Asia and South America The Global economic turmoil of the past 2 years has revealed the vulnerability ofThe economies of Latin America, and put into question whether or not the region can achieve growth without crisis. For 1990-1999, growth did not reach 3% per year, substantially below the 6% the World Bank estimates will be necessary to reduce poverty in the region (Website iadialog.org).
They are experiencing record levels of unemployment, shrinking wages and cutbacks in social expenditures due to the fall of prices and demand for the regions commodities. Most South Americans are poorer now than they were during the 80's, a time when economic growth was also low. This could affect Caterpillar with plants located in Brazil and Mexico. The crisis began in Asia in 1997, and has become very serious and potentially damaging. In November of 1997, in a single day there was a 5% decline in stocks fueled by fears that the shutdown of Japans 4th largest securities firm was a sign of more bankruptcy's to come (pbs.org). People are now expressing fear for the stock markets and banks. The price of U.S.
goods went up, and so did the lack of demand for U.S. goods. Analysts warn that psychological distrust could spread from financial institutions to areas such as real estate and construction. Jim Annable, an analyst from First Chicago NBD said that 40% of Caterpillar's heavy equipment gets exported to Asia, so the Asian recession hurts strongly because Asian products will be a lot cheaper than U.S. made goods that are imported in. He also stated that the industrial Midwest would grow about 3/4 of a percent slower due to the recession in Asia.Labor Shortages As of right now, Caterpillar seeing a time when their business is thriving in most areas, but what does the future hold for Caterpillar.
Just a short time ago, Caterpillar faced huge labor strike that could have crippled the company, but now those workers that once were striking, are now back at work. The majority of people working for Caterpillar right now are skilled at what they do, and have years of experience. Because of the difficulty of entering into one of the plants, there are not a lot of new workers that come in. Nine out of ten UAW people at Caterpillar make over $40,000 a year. That's nearly a third better than the U.S.
median. So you can see that once inside the organization, one of the employees wouldn't want to leave, and make room for new trainees. Despite all of these aforementioned things, Caterpillar is expected to have a labor shortage of over 15,000 technicians over the next 5 years (Barron's). Skilled older workers are retiring faster than they can be replaced, and mechanically oriented young people are finding steadier work, better pay and cleaner working conditions in Automotive, aerospace and manufacturing industries. What it comes right down to is the simple fact that in today's job market, most employers are requiring that you have a degree, and even if they don't require it, someone with a degree will get the job instead of you. What's going to happen when all of Caterpillars skilled workers, who have been there for years retire from their job.
The next generation of workers will have degrees in technological fields, and won't want to go work in a factory setting, when they could be making more money at a computer.Caterpillar and the UAW If you were to fly into Peoria, Illinois in 1995, you would have encountered a billboard announcing Caterpillar Incr.'s pride in its headquarters city. If you would continue on downtown and turn right across and Illinois river bridge, you would be in blue collar east Peoria, home to one of Caterpillar's key plants. Here you would have found a less friendly message posted by the United Auto Workers. It stated "You are entering a war zone. Caterpillar vs. It's UAW Workers." (American Enterprise) Since the fall of 1991, United Auto Workers have had walkouts or lockouts, one right after another.
Even still in 1995, 10,000 CAT unionists were still behind picket lines.The Beginning Sometime in 1990, the cooperative atmosphere on the shop floor began to change. The union says that it can be traced back to the day Donald V. Fites became Chairman and CEO. Fites, a civil engineer with a masters in management and an international career with the company, once expressed to an interviewer that a union "blocks communication channels and adds a layer of inefficiency to an organization" (American Enterprise). Fites pushed for more outscoring, more flexibility in work rules and fewer positions, all threats to union practices and privileges.
In the immediate period before Fites took over, CAT had signed two UAW contracts in a row without a strike, the first time that had happened in over 30 years.The Strike Through 1991, tensions mounted. By 1992, the confrontation had become a full strike. That round ended with a whipped union, skulking back to work without a contract. Needless to say, this did not leave Union workers satisfied, and they began a campaign of signs, buttons and T-shirts with impolite comments about Fites, and CAT leadership. As the union intended, this did not make CAT's floor supervision happy and the union got what they wanted by making the supervisors do things that the union knew they could complain about.
There was over 120 National Labor Relations Board complaints against the company. Complaints were things such as illegal suspensions, discharges and preferential treatment of people who crossed picket lines. The UAW was now banned together with their disgusts for the company, so when another company wide strike was called in 1994, nearly all UAW members walked out (American Enterprise). Strike 2 The next strike was characterized as a strike for unfair labor practices so that CAT couldn't legally replace the workers like in the previous strike. Workers held up signs like "DEERE IS CAT TO ME," but CAT knows that it's real competition lies in the German and Asian Market and not in U.S. companies such as Deere, Inc.
UAW workers also stated that Caterpillar was trying to impoverish the working class, but this doesn't make a lot of sense, considering as we stated earlier, CAT employees make wages that, on average are a third better than the U.S. median. Labor Management negotiations often improve dramatically when one side begins to hurt, but neither group in Peoria would admit to any pain. Each striker was making $300 a week, plus fully paid insurance, while on strike. The monthly bill for the UAW internationally probably totals about $20 million. Cat workers, however, represent less then 2% of the membership of a union with a strike fund that is more than $900 million.
Individual workers might be hurting, but as you can see, the union is not (American Enterprise).After the Strike While the strike centers on important universal issues, the lines were clear-cut and the opponents well matched. Both CAT and the union have major intellectual and financial backing, as well as good reason to come to an agreement. However, the knowledge, skills and commitment needed to survive today in international business must be found on the plant floor as well as in the office. Noting the need for cooperation, the union local president asked "What the hell are they going to do when they get that work force back in there? Who's going to cooperate"? That quote is the basis for this weakness of Caterpillar, Inc. What is going to happen at the end of this contract when another one needs to be made? Are the employees of caterpillar still bitter about the strike? Are the supervisors and directors at Caterpillar still bitter? Only time will tell.
Fites is no longer the Chairman and CEO of Caterpillar, so some problems with him may be solved. But there is no doubt that some bitterness is still present in both the floor and the towers of Caterpillar, Inc. For these reasons, Caterpillar may not be a good purchase of stock. They may be doing quite well now, but what if you invest money in them, only to see your money possibly be dwindled away by another bitter strike, or individual sales were contrived.
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